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XYRATEX LTD

ANNUAL REPORT FOR THE YEAR ENDED

NOVEMBER 30, 2013

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As filed with the Securities and Exchange Commission on August 29, 2014

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 20-F

(Commission file number 000-50799)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

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Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

o Yes   x No

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

o Yes   x No

Note — Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

x Yes   o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

x Yes   o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

o Item 17   o Item 18

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

o Yes   x No

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INTRODUCTION

Xyratex Ltd is a limited liability company incorporated under the laws of Bermuda. Xyratex Ltd was incorporated on April 10, 2002 and is registered with the Registrar of Companies in Bermuda under registration number EC 31989. As a Bermuda company, we are governed by the Companies Act 1981 of Bermuda. We maintain a registered office in Bermuda at Clarendon House, Church Street, Hamilton, Bermuda. Our principal executive offices are located at Langstone Road, Havant PO9 1SA, United Kingdom and the telephone number for these offices is (011) 44 2392 496000. Our agent for service of process in the United States is Brad Driver, 46831 Lakeview Blvd, Fremont, California 94538, USA (telephone: (510) 687 5200).

We conducted an initial public offering in the United States and listing of our common shares on the NASDAQ National Market on June 29, 2004. Our common shares trade on The NASDAQ Stock Market LLC under the symbol “XRTX” and were listed on the NASDAQ Global Select Market until our acquisition by Seagate Technology International on March 31, 2014.

Our business began as part of IBM Corporation in 1966. We conducted our business as a manufacturing and development operation until December 1994, at which time we separated from IBM in a management buy-out. Today 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 has over 25 years of experience in research and development relating to disk drives, storage systems and manufacturing process technology.

On March 31, 2014, Seagate Technology International, an indirect subsidiary of Seagate Technology plc, acquired Xyratex Ltd at a price of $13.25 per share, and is now the sole shareholder of Xyratex Ltd.

In this Annual Report, except as otherwise indicated or as the context otherwise requires, the “Company,” “Group,” “Xyratex,” “we,” “us” and “our” refers to Xyratex Ltd and its subsidiaries.

INDUSTRY DATA

In this Annual Report, we refer to information regarding the enterprise data storage market and the HDD capital equipment market from the following independent research companies: Gartner and International Data Corporation or IDC.

The Gartner Report described herein (the “Gartner Report”) represents data, research opinion or viewpoints published, as part of a syndicated subscription service, by Gartner, Inc. (“Gartner”), and are not representations of fact. Each Gartner Report speaks as of its original publication date (and not as of the date of this Annual Report) and the opinions expressed in the Gartner Report are subject to change without notice.

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report includes forward-looking statements. All statements other than statements of historical fact included in this Annual Report regarding our business, financial condition, results of operations and certain of our plans, objectives, assumptions, expectations or beliefs with respect to these items and statements regarding other future events or prospects, are forward-looking statements. These statements include, without limitation, those concerning: our strategy and our ability to achieve it; anticipated product launches; expectations regarding sales, profitability and growth; our possible or assumed future results of operations; capital expenditure, the impact of cost reduction efforts and investment plans; adequacy of capital; continued beneficial tax status and ability to use deferred tax assets; and financing plans. The words “aim,” “may,” “will,” “expect,” “anticipate,” “believe,” “future,” “continue,” “help,” “estimate,” “predict,” “project,” “potential,” “plan,” “intend,” “should,” “could,” “would,” “shall” or the negative or other variations thereof as well as other statements regarding matters that are not historical fact, are or may constitute forward-looking statements. In addition, this Annual Report includes forward-looking statements relating to our potential exposure to various types of market risks, such as foreign exchange rate risk, interest rate risks and other risks related to financial assets and liabilities. We have based these forward-looking statements on our management’s current view with respect to future events and financial performance. These views reflect the best judgment of our management but involve a number of risks and uncertainties which could cause actual results to differ materially from those predicted in our forward-looking statements and from past results, performance or achievements. Although we believe that the estimates reflected in the forward-looking statements are reasonable, such estimates may prove to be incorrect. By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. There are a number of factors that could cause actual results and developments to differ materially from these expressed or implied by these forward-looking statements. For further discussion of these factors and other risks, see “Part I, Item 3.D—Risk Factors” and “Part I, Item 5—Operating and Financial Review and Prospects (Management’s Discussion and Analysis of Financial Condition and Results of Operations).”

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PART I

ITEM 1:  IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM 2:  OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

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ITEM 3:  KEY INFORMATION

Item 3.A:  Selected Financial Data

The following selected consolidated financial data, set forth below for each of the last five fiscal years, is not necessarily indicative of results of future operations and should be read in conjunction with “Part I, Item 5: Operating and Financial Review and Prospects (Management’s Discussion and Analysis of Financial Condition and Results of Operations)” and the Consolidated Financial Statements and related notes thereto included in “Part III, Item 18: Financial Statements,” to fully understand factors that may affect the comparability of the information presented below.

The selected historical consolidated statement of operations data for the years ended November 30, 2013, 2012 and 2011 and balance sheet data as of November 30, 2013 and 2012 presented below have been derived from our consolidated financial statements included elsewhere in this Annual Report. The selected historical consolidated statement of operations data for the years ended November 30, 2010 and 2009 and balance sheet data as of November 30, 2011, 2010 and 2009 presented below have been derived from the consolidated financial statements not included in this report.

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Item 3.B:  Capitalization and Indebtedness

Not applicable.

Item 3.C:  Reason for the Offer and Use of Proceeds

Not applicable.

Item 3.D:  Risk Factors

The key risks relating to our business and industry are included below. Additional risks of which we are presently not aware or that we currently deem immaterial may also impair our business.

Sales to a small number of customers represent a substantial portion of our revenues. The loss of any of our major customers could significantly harm our financial condition.

We derive a substantial portion of our revenues from a relatively small number of customers. In our 2013 fiscal year, sales to our top six customers accounted for 86% of our revenues with sales to IBM, NetApp Inc., Dell Inc., HP and Seagate Technology accounting for 25%, 20%, 12%, 11% and 11% of our revenues respectively. In our 2012 fiscal year, sales to our top six customers accounted for 88% of our revenues with sales to NetApp, Dell and IBM accounting for 38%, 19% and 15% of our revenues respectively. It is likely that a small number of customers will continue to account for a substantial portion of our revenues in the future. If we were to lose any one or more of our major customers, experience any material reduction in orders from any of these customers or experience a deterioration in our relationships with any of these customers, our financial condition could be significantly harmed.

Additionally, if there is further consolidation within our industry or among our customer base, this may lead to reduced demand for our products, replacement of our products by the combined entity with those of our competitors and cancellations of orders. These consolidated customers may have increased leverage in negotiating prices and other terms of sale. For example, we believe the acquisition of Hitachi Global Storage Technologies by Western Digital could lead to reduced demand for our capital equipment products.

In 2008, we reached an agreement with NetApp which enables them to utilize contract manufacturers, under license, as an alternative source for the products we supply. As a result, we have experienced a significant reduction in sales to NetApp and expect to experience further reduction in such sales, as our agreement with NetApp allows NetApp to alternatively source an increasing proportion of our products each year. This proportion was set at a maximum of 25% for our 2011 fiscal year, increasing to 50% in our 2012 fiscal year, 75% in our 2013 fiscal year and 100% in our 2014 fiscal year. Any further penetration of contract manufacturers into our major customers could adversely affect our revenues and financial condition.

Our customers operate in an industry that experiences frequent volatility. If any of our top customers were to suffer financial difficulties, whether as a result of downturns in the markets, loss of market share in which they operate or otherwise, our financial condition could be significantly harmed.

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The markets in which we operate are cyclical and a reduction in customer demand in any particular financial period could significantly harm our financial condition.

Customer demand is cyclical in the technology industry in general, and the HDD capital equipment market in particular. One reason for the particular variability in demand for these products is that, for our customers, the decision to invest in new or upgraded production facilities is a strategic decision that involves a significant commitment of their financial resources. A customer’s decision is dependent upon several factors, including its financial condition, the condition and obsolescence of its existing production facilities, the expected demand for its products, product or technology changes and general confidence in its business. Our revenues are likely to continue to reflect the cyclical nature of the technology industry.

Demand for our HDD capital equipment products is also linked to developments in the disk drive market. The market for disk drives has historically experienced periods of production over-capacity which have in turn led to the deterioration of market prices for data storage products. Consolidation activity could impact the normal pattern of demand versus supply as the hard disk drive customers move business away from the consolidated entity to achieve an independent dual source strategy. Competitive activity usually increases during this period of market share realignment as each company tries to grow its share which often results in increased disk drive inventories in the channel. The confidence of our customers to invest in new disk drive production equipment does not usually recover until supplies of disk drives are reduced or new technologies are introduced. Future over-capacity and further consolidation in the disk drive market could result in a significant decrease in demand for our products, and this could significantly harm our financial condition.

Because original equipment manufacturers comprise a substantial portion of our customer base, we have limited control over the volume and pricing of our products, which could significantly harm our financial condition.

We sell our enterprise data storage products primarily to original equipment manufacturers, or OEMs, and our capital equipment products primarily to disk drive manufacturers. As a result, the quantity of products that we sell is significantly affected by our OEM customers’ volume requirements, over which we have little control. We are subject to continued pricing pressures from our customers, particularly our OEM customers. If these volume requirements decrease or pricing pressures increase, our financial condition could be significantly harmed.

Our operating results are subject to substantial quarterly and annual fluctuations, our period to period comparisons are not necessarily meaningful and we may not meet the expectations of public market analysts and investors.

Our revenues in any quarter are substantially dependent upon customer orders in that quarter. We attempt to project future orders based in part on estimates from our major customers. For this purpose, arrangements with major customers will usually include the estimated future volume requirements of that customer. Our customers’ estimated requirements are not always accurate and we therefore cannot predict our quarterly revenues with any degree of certainty.

Our typical pricing model is based on several variables (including overall volume of products ordered and the type and cost of components) which also makes it difficult for us to accurately predict future revenues. In addition, we regularly develop new products. Revenues from new products are difficult for us to predict accurately and are usually at a higher initial cost due to the low initial volumes. Any delay in the development of new products could further complicate revenue predictions and result in a reduction in our expected revenues.

Our quarterly operating results have fluctuated significantly in the past, as shown in the table below for our 2013 and 2012 fiscal years.

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In addition, we may derive a significant portion of our revenues in each quarter from a small number of relatively large orders. If one or more of our major customers decides to defer a purchase order or delays product acceptance in any given quarter, this is likely to result in reduced total revenues for that quarter. Accordingly, comparisons of our quarterly results of operations or other period to period comparisons are not necessarily meaningful and should not be relied on as an indication of our future performance.

Our quarterly and annual revenues and results of operations may also fluctuate significantly if one or more of the risk factors identified in this Annual Report occurs and, depending upon the timing of that event, may have a disproportionate effect in any given quarter or year. In addition, it is possible that some future results of operations may be below the expectations of public market analysts and investors, which could cause a decline in our share price.

Our gross margins may vary based on the configuration of our products and the mix in a period.

We derive a significant proportion of our sales from the sale of disk drives as components of our enterprise storage systems and the market is highly competitive and subject to intense pricing pressures. Our sales related to disk drives generate lower gross margins than other components of our enterprise storage systems. As a result, if we sell systems with greater disk drive content our overall gross margins may be negatively affected.

Our gross margins have been and may continue to be affected by a variety of other factors, including:

·                  Product and customer mix.

·                  HDD and other component costs.

·                  Changes in component content of products.

·                  Shipment volumes—a proportion of our cost of sales is fixed and therefore increases or decreases in volumes result in increases or decreases in gross margins.

·                  New product introductions or product enhancements.

·                  Inventory valuation adjustments as a result of changes in demand forecasts or product defects as we transition our product.

·                  Additional freight, transportation and other one-time costs to expedite component purchases or move finished product between locations to satisfy short term changes in demand.

·                  Commoditization of hardware. As the hardware we sell becomes more commoditized our overall margins are affected. Without significant differentiation, services and software, our margins will be impacted in the future.

Decreases in our gross margin from any of these factors could significantly harm our financial condition.

Our market is highly competitive and we may not be able to compete effectively.

We operate in markets that are highly competitive and subject to rapid change and that are significantly affected by new product introductions and other market activities of industry participants. We expect competition to persist and intensify in the future. Our principal sources of competition include:

·                  companies providing storage subsystems and components to OEMs, including MiTAC Holdings Corporation, Quanta Storage Inc. and Sanmina Corporation (doing business as Newisys), together with larger suppliers such as EMC Corporation and Hitachi, Ltd.;

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·                  electronic manufacturing services (EMS) companies acquiring the necessary skills and intellectual property to enter the enterprise data storage marketplace;

·                  other high performance computing (HPC) data storage providers including Data Direct Networks and Panasas, Inc., together with larger suppliers such as EMC, NetApp and IBM;

·                  companies providing capital equipment to disk drive manufacturers, including existing suppliers of products such as Hitachi High-Technologies Corp. and Teradyne, Inc.;

·                  in-house development efforts by existing and potential customers; and

·                  collaborations between in-house development teams and a combination of EMS, contract electronic manufacturing (CEM) or emerging technology companies.

In addition, we face potential competition from new entrants including our current technology suppliers.

Some of our current and potential competitors may have longer operating histories, lower operating costs, or greater financial, technical, marketing or other resources than we do and we cannot assure you that we will have the resources to compete successfully in the future. In addition, some of our competitors have the resources to enable them to adopt aggressive pricing policies to gain market share or to shift production to lower cost regions. If we are unable to compete successfully against our current and future competitors, we could experience profit margin reductions or loss of market share, which could significantly harm our financial condition.

Our competitors may consolidate or form alliances with each other in the future. The successful consolidation of two or more of our competitors could result in the combination of their resources and technological capabilities. This could result in a more formidable competitor with improved access to a wider customer base and improved economies of scale and could result in the loss by us of significant market share. In addition, any future consolidation between any of our competitors and any of our suppliers could result in increased costs for the supply of components from that supplier or the need to find an alternative source for the supply of those components. If we are unable to identify an alternative supplier then our ability to manufacture our products at acceptable prices or to deliver our products on time could be impaired. Moreover, future consolidation between any of our competitors and any of our customers could result in a decrease in the volume of purchases from that customer or the loss of that customer altogether. Industry consolidation within the markets in which we operate could adversely affect our revenues and negatively impact our competitive position.

Continuing weakness or further deterioration in global economic conditions may have an adverse impact on our results of our operations and financial condition.

The impact of the global financial crisis continues to be a cause of concern despite concerted efforts by certain governments and international institutions to contain the adverse effect of these events on the global economy. Global financial and credit markets have been extremely unstable and unpredictable and economic conditions in some of the countries in which we operate have been weak. The instability of the credit markets and weakness of the global economy could continue to adversely affect the demand for our products and our customers’ products, the amount, timing and stability of their orders from us, the financial strength of our customers and suppliers, their ability or willingness to do business with us, our willingness to do business with them, our suppliers’ and customers’ ability to fulfill their obligations to us and the ability of our customers, our suppliers and us to obtain credit. These factors could adversely affect our operations and financial condition.

The success of our business depends on the continued high growth of the volume of digital information. If this growth does not occur at the rate anticipated, our business may be significantly harmed.

All of our products find application in the data storage market. If the growth that we and others have forecasted in the data storage market does not occur at the rate we expect, our business may be significantly harmed.

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Claims by third parties that we infringe their intellectual property or that patents on which we rely are invalid could significantly harm our financial condition, and the enforcement of our intellectual property rights may be expensive and could divert valuable company resources.

We operate in an industry characterized by frequent disputes over intellectual property. Third parties have in the past asserted, and in the future may assert, patent, copyright, trademark and other intellectual property rights to technologies that are important to our business and make claims that our products and technologies infringe their intellectual property, which could result in infringement lawsuits being filed against us. Any claims, whether made directly against us or through the arrangements we often enter into with our customers, could result in costly litigation, divert the attention of our technical and management personnel from operating our business, cause product shipment delays, or prevent us from making or selling certain products. In addition, we cannot give assurances that we would prevail in any litigation related to infringement claims against us. Generally, our liability insurance does not cover claims of this type. Moreover, as a result of these sorts of claims, we could be required to enter into royalty or licensing agreements which, if available, may not be available on commercially reasonable terms. We expect that providers of storage products will increasingly be subject to infringement claims as the number of products and competitors increases.

We may also need to assert claims against others in the future to enforce our intellectual property rights, to protect our trade secrets, or to determine the validity and scope of the proprietary rights of others, and we cannot be certain that we would prevail in any future litigation. Any litigation of this nature, whether or not determined in our favor or settled by us, would be costly and could divert valuable company resources. The enforcement by third parties of their intellectual property rights against us or the failure to successfully protect our intellectual property rights could significantly harm our financial condition.

Claims by third parties that we infringe their intellectual property may arise through our use of open source technologies within our products.

We increasingly use open source software technologies within our products. Although we have taken steps to keep open source technologies separated, our use of open source software could subject us to claims of ownership of, or demands for the release of, the source code, the open source software and/or derivative works that were developed using such software, or claims that otherwise seek to enforce the terms of the applicable open source license. These claims could also result in litigation or require us to purchase a costly license, devote additional research and development resources to change our products or discontinue the sale of certain products, any of which would have a negative effect on our business, financial condition and operating results.

The markets for our products are characterized by frequent technological innovation. If we do not successfully develop new products in a timely manner, or the market for our products declines, our future operating results and competitive position could be significantly harmed.

The markets for our products are characterized by rapid technological change, frequent new product introductions and technology enhancements, uncertain product life cycles and changes in customer demand. We cannot assure you that the design of future products will be completed as scheduled, that we will not experience difficulties that delay or prevent successful development, introduction, marketing and licensing of new products, or that any new products that we may introduce will achieve market acceptance or commercial success. In addition, the introduction of products based on new technologies and new industry standards could render our existing products obsolete and unmarketable and could devalue our previous investment in research and development. If we do not successfully develop new products in a timely manner our future profitability and competitive position could be significantly harmed. As a result of rapid technological changes, we may have to exit markets in which we operate. If we cannot manage the impact of the disruption on our existing customer base, our financial condition could be harmed.

The markets for our products are also characterized by technological change driven in part by the adoption of new industry standards. These standards coordinate the natural competitive behavior within the technology spaces and provide mechanisms to ensure technology component interoperability can occur. If any of our markets or technology space becomes completely defined by such standards it would reduce any capability for differentiation or innovation and our affected products would revert to commodity status. This could lower the barriers to entry to our market away from our specialist research and development skills and enable entry for the general-purpose design skills found in some large EMS and CEM companies. Commodity markets are driven by extremely low margins and very aggressive

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competitive pricing. If our market becomes more commoditized and we fail to deliver innovative value-added alternatives to our customers, we will have great difficulty competing against the larger EMS and CEM companies and our financial condition could be harmed.

In addition, cloud computing has emerged whereby applications and data are hosted, accessed and processed through a third-party provider over a broadband internet connection, potentially reducing the need for among other things, the amount of storage needed within personal computers. This trend could cause the market for our HDD capital equipment to decline over time, which could harm our business.

We are dependent on single source suppliers and limited source suppliers for certain key components and subassemblies.

Our manufacturing process depends on the availability and timely supply of components and subassemblies which meet our specifications and quality demands. Some of the components that we integrate into our own products are highly specialized and may only be available from a single source or a limited number of suppliers, particularly semiconductor and HDD suppliers. In addition, we depend on Flextronics International Ltd. as our sole source supplier for the provision of electronic printed circuit board assemblies (PCBAs). We are dependent on a number of other companies as sole source suppliers for certain subassemblies. Our reliance on Flextronics reduces our control over the manufacturing process, exposing us to risks including reduced control over quality assurance, increased production costs and reduced product supply. If we fail to manage effectively our relationship with Flextronics, or if Flextronics experiences delays, disruptions, capacity constraints or quality control problems in their manufacturing operations, our ability to ship products to our customers could be impaired and our competitive position and reputation could be damaged. Moreover, if any of our suppliers were to cancel or materially change their commitments to us or fail to meet the quality or delivery requirements needed to satisfy customer demand for our products, we could lose time-sensitive orders, be unable to develop or sell some products cost-effectively or on a timely basis, if at all, and have significantly decreased revenues, margins and earnings, which would have a material adverse effect on our business. In addition, our suppliers may go out of business, be impacted by natural disasters or may cease production of components, and it can take a substantial period of time to qualify a new supplier of components. Moreover, we obtain these components through purchase order arrangements and do not have long-term supply agreements in place with our suppliers.

We often aim to lead the market in new technology deployments and leverage unique technology from single source suppliers who are early adopters in the emerging market. Our options in supplier selection in these cases are limited and the supplier based technology may consequently be single sourced until wider adoption of the technology occurs. In such cases any technical issues in the supplier’s technology may cause us to delay shipments of our new technology deployments and therefore harm our financial position.

We are heavily dependent on our proprietary technology and our competitors may gain access to this technology.

We depend heavily on our proprietary technology and rely on a combination of patent, copyright and trade secret laws to protect our intellectual property and expertise. We also attempt to protect our trade secrets and other proprietary information through confidentiality agreements with our customers, suppliers and employees and through other security measures. Despite these efforts, we cannot give assurances that others will not gain access to our trade secrets or that we can fully protect our intellectual property. In addition, effective trade secret protection may be unavailable or limited in certain countries in which we operate. Nor can we guarantee that our competitors will not independently develop comparable technologies. We cannot rely on our patents to provide us with any significant competitive advantage. Failure to protect our proprietary rights could significantly harm our financial condition.

Our products are complex and may contain defects that are detected only after deployment in complex networks and systems.

Our products are highly complex and are designed to form part of larger complex networks and systems. Defects in our products, or in the networks and systems of which they form a part, may directly or indirectly result in:

·                  increased costs and product delays until complex solution level interoperability issues are resolved;

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·                  costs associated with the remediation of any problems attributable to our products;

·                  loss of or delays in revenues;

·                  loss of customers;

·                  failure to achieve market acceptance and loss of market share;

·                  increased service and warranty costs; and

·                  increased insurance costs.

Defects in our products could also result in legal actions by our customers for property damage, injury or death. Product liability claims could exceed the level of insurance coverage that we have obtained to cover defects in our products. Any significant uninsured claims could significantly harm our financial condition.

Our future growth may depend in part on our successfully identifying and executing acquisitions, joint ventures and strategic relationships.

Our growth strategy may involve acquisitions, strategic alliances or joint ventures. These transactions involve certain risks resulting from the difficulties of integrating employees, operations, technologies and products. We may incur significant acquisition, administrative and other costs in connection with these transactions, including costs related to the integration of acquired or restructured businesses. In order to successfully integrate acquired operations into our business we may be required to expend significant funds, incur debt or assume liabilities, any of which could negatively affect our operations. In addition, the successful integration of acquired operations may also require substantial attention from our senior management, which may limit the amount of time available to be devoted to the day-to-day operations of our business or the execution of our business strategy. There can be no assurances that any of the businesses we acquire can be successfully integrated or that they will perform well once integrated. Additionally, we may be required to record expenses for write-downs of goodwill or other intangible assets associated with our acquisitions.

We have a long and unpredictable sales cycle.

Our products are technically complex and we typically supply them in high quantities to a small number of customers. Many of our products are also tailored to meet the specific requirements of individual customers, and are often integrated by our customers into the systems and products that they sell. Factors that affect the length of our sales cycle include:

·                  the time required for testing and evaluating our products before they are deployed;

·                  the size of the deployment; and

·                  the degree of system configuration necessary to deploy our products.

As a result, our sales cycle is often in excess of one year, and the length of our sales cycle is frequently unpredictable. In addition, the emerging and evolving nature of the market for the products that we sell may lead prospective customers to postpone their purchasing decisions. We invest resources and incur costs during this cycle that may not be recovered if we do not successfully conclude sales. These factors lead to difficulty in matching revenues with expenses, and to increased expenditures which together may contribute to declines in our results of operations and our share price.

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Certain of our products are subject to U.S. export control laws and other international laws affecting the countries in which our products and services may be sold, distributed, or delivered. If we were found to have violated these laws, the consequences of such a determination could have a material and adverse effect on our business, financial condition and results of operations.

Due to the global nature of our business, we are subject to import and export restrictions and regulations, including the Export Administration Regulations (EAR) administered by the Commerce Department’s Bureau of Industry and Security (BIS) and the trade and economic sanctions regulations administered by the Treasury Department’s Office of Foreign Assets Control (OFAC). The United States, through the BIS and OFAC, places restrictions on the sale or export of certain products and services to certain countries and persons. Violators of these export control and sanctions laws may be subject to significant penalties, which may include significant monetary fines, criminal proceedings against us and our officers and employees, a denial of export privileges, and suspension or debarment from selling products to the federal government. We take a variety of precautions to prevent our products from being shipped to U.S. sanctioned targets; however, our products could be shipped to those targets by third parties, including potentially our customers.

We operate in North America, Asia and Europe and we cannot predict the impact that risks typically associated with conducting business internationally will have on our business.

We have operations in North America, Asia and the United Kingdom. We market and sell our products throughout the world. As a result, we are exposed to risks typically associated with conducting business internationally, many of which are beyond our control. These risks include:

·                  significant currency fluctuations between the U.S. dollar (in which our revenues are principally denominated) and the U.K. pound and Malaysian ringgit (in which certain of our costs are denominated);

·                  complexities of managing our operations in North America, Asia and the United Kingdom;

·                  uncertainty owing to the overlap of different legal regimes, a possibly disadvantageous legal position due to the application of foreign law as well as problems in asserting contractual or other rights across international borders, for example, warranty claims against suppliers and claims for payment against customers;

·                  potentially adverse tax consequences, such as transfer pricing arrangements between the countries in which we operate or a deemed change in the tax residence of one or more of our subsidiaries;

·                  potential tariffs and other trade barriers;

·                  unexpected changes in regulatory requirements;

·                  the burden and expense of complying with the laws and regulations of various jurisdictions, including increasing liability under data privacy requirements and anti-corruption regulations;

·                  the impact of an outbreak of a viral pandemic, such as swine flu, severe acute respiratory syndrome or the avian flu virus, on our employees or suppliers; and

·                  the impact of a natural disaster or severe weather affecting a large geographical region, such as the flooding in Thailand in 2011, which could affect either supply lines, our ability to produce products internally, deliver our products or our customers’ ability to pay or purchase new products and require us to invest in extensive plant and machinery to protect our buildings and production operations.

The occurrence of any of these events could significantly harm our financial condition.

We have experienced operating losses in the past and there can be no assurance that we will be profitable in the future.

We have experienced operating losses in the past, including operating losses of $2.2 million and $12.1 million in our 2013 and 2009 fiscal years, respectively. We expect to continue to incur significant product development, administrative and sales and marketing expenses as well as costs associated with potential future acquisitions and therefore we will need to generate significant revenues in order to achieve and maintain profitability. We cannot assure you that we can achieve operating income on a quarterly or annual basis in the future.

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We are dependent upon hiring and retaining highly qualified management and technical personnel.

We operate in the data storage technology market. Our key management and technical staff are currently located in the United Kingdom, the United States and Asia. There is strong competition for the highly qualified management and technical personnel with experience in our markets that we need to run our business and to develop new technologies and products. In California, in particular, the rate of turnover of key personnel in our markets is high. Our future success depends in part on our continued ability to hire and retain well-qualified technical personnel. We also rely heavily on our senior management and their ability to maintain relationships with our key customers. Many of our senior managers would be difficult to replace. In addition, we do not maintain key-person life insurance on any member of our senior management. The loss of any of our key management or technical personnel could significantly harm our financial condition.

We may incur expenses related to obsolescence or devaluation of unsold inventory, or to reserves necessary to protect us against future write-offs of unsold inventory.

Failure by us to accurately estimate product demand could cause us to incur expenses related to obsolescence or devaluation of unsold inventory. Due to the nature of our sales arrangements and supply and production arrangements, we may carry a significant amount of unsold inventory. As part of our internal controls, we have comprehensive inventory controls which include management approval for significant inventory purchases and monthly reviews of inventory levels and obsolescence. In our 2011 fiscal year, we recorded reserves related to inventory obsolescence of approximately $7 million as a result of reduced forecast demand for our products. Historically, our costs related to obsolescence have been less than 0.5% of revenues. If we fail to accurately estimate product demand in the future, our inventory may lose value or become obsolete before it is sold. This may require us to increase our reserves for obsolete inventory, which could significantly harm our financial condition.

Our principal shareholders own a significant percentage of our Company and are able to exercise significant influence over our Company, and their interests may differ from those of our other shareholders.

Our principal shareholders and their affiliated entities together control approximately 30.0% of our issued and outstanding common shares. Accordingly, these shareholders, if they were to act together, would have significant influence over our affairs. They may exercise this influence by voting at a meeting of the shareholders in a manner that advances their best interests and not necessarily those of other shareholders. This concentration of ownership also could have the effect of delaying or preventing a change in control of our Company or otherwise discouraging a potential acquirer from attempting to obtain control of us.

If our Malaysian subsidiary ceases to receive favorable tax treatment by the Malaysian government we may be subject to tax liability that could significantly harm our financial condition.

A significant proportion of our enterprise data storage product revenues are recorded by our Malaysian subsidiary, which benefits from tax incentives granted by the Malaysian government. These are currently in force until 2017. Our favorable tax treatment in Malaysia is dependent upon the success of meeting certain requirements set out by the Malaysian authorities and demonstrating to both the Malaysian and the U.K. tax authorities that transactions between the relevant parties take place on an arm’s-length basis. The loss of these tax benefits could increase our tax liabilities for past, current and future years, which could significantly harm our financial condition.

Geopolitical military conditions, including terrorist attacks and other acts of war, may materially and adversely affect the markets on which our common shares trade, the markets in which we operate our operations and our financial condition.

Terrorist attacks and other acts of war, and any response to them, may lead to armed hostilities and such developments would likely cause instability in financial markets. Armed hostilities and terrorism may directly impact our facilities, personnel and operations which are located in the United States and internationally, as well as those of our customers and suppliers. Furthermore, severe terrorist attacks or acts of war may result in temporary halts of commercial activity in the affected regions, and may result in reduced demand for our products. These developments could have a material adverse effect on our business and the trading price of our common shares.

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We could incur substantial costs, including clean-up costs, fines and civil or criminal sanctions, as a result of violations of or liabilities under environmental laws.

Our operations inside and outside the United States are subject to laws and regulations relating to the protection of the environment, including those governing the discharge of pollutants into the air and water, the management and disposal of hazardous substances and wastes and the clean-up of contaminated sites. Certain of our operations involve the use of substances regulated under various federal, state and international environmental laws. It is our policy to apply strict standards for environmental protection to sites inside and outside the United States, even if not subject to regulations imposed by local governments. We could incur substantial costs, including clean-up costs, fines and civil or criminal sanctions, third-party property damage or personal injury claims if we were to violate or become liable under environmental laws or become non-compliant with environmental permits required at our facilities.

Increasing environmental legislation could adversely affect our business if we are unable to comply with regional legislation and hence be unable to supply products to certain global regions.

The business in which we operate is governed by environmental laws and regulations. European examples include the WEEE (waste electrical and electronic equipment), RoHS (restriction of hazardous substances) and REACH (registration, evaluation and authorisation of chemicals) Directives. Increasingly, more countries are introducing environmental legislation. Also, our major customers are introducing their own restrictions and requirements on the substances we can use within the products we supply to them.

We may be required to expend significant amounts of both time and money to ensure that we are in compliance with these new country and customer requirements. In addition, any changes to these laws or requirements (or their interpretation and enforcement) may require us to make significant changes to our products or our manufacturing processes.

If we fail to comply with environmental laws and regulations that affect our products, we could incur criminal or civil fines, penalties or other damages, which could be substantial. We might also have restrictions or limitations placed on our business operations that could have an adverse effect on our financial results. Failure to comply with our customers’ environmental requirements could result in the loss of one or more of our customers or reduced orders from our customers, which could significantly harm our financial condition.

Failure to comply with increasing corporate social responsibility (CSR) legislation and the CSR requirements of our customers could result in fines and civil or criminal sanctions and adversely affect our business.

There is an increasing amount of CSR legislation which affects the business in which we operate. Recent examples include the Dodd-Frank Wall Street Reform Act of 2010 and the California Transparency in Supply Chains Act of 2010.

The Dodd-Frank Wall Street Reform Act of 2010 holds U.S. companies responsible for tracing and auditing their supply chain for minerals and derivative metals from the Democratic Republic of Congo and adjoining countries to ensure that they are not funding armed groups. We are required to trace, audit, and certify minerals used within our products that are supplied from conflict-free mines and complete form SD for the Securities and Exchange Commission (SEC). We may incur significant costs to comply with these diligence and disclosure requirements. In addition, we may have to change the supplier for certain components, if they cannot be proven to be conflict-free minerals. We may also face reputational harm, or reduced revenues, if our customers or other stakeholders conclude that we are unable to verify sufficiently the origins of the minerals used in the products we sell.

The California Transparency in Supply Chains Act of 2010 became effective on January 1, 2012. This act requires retailers and manufacturers who do business in the State of California and have gross worldwide sales of more than $100 million to be transparent about the efforts (if any) they have undertaken to eradicate slavery and human trafficking in their supply chain. Failure to comply with this act could lead to an injunction brought by the California Affiliate Attorney General and reputational harm.

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In addition, our customers are increasingly imposing conditions on us related to CSR.

If we fail to comply with all CSR related laws and regulations that affect our products, or if we cannot comply with our customers’ CSR requirements, we might have restrictions or limitations placed on our business operations, be subject to fines and penalties or be subject to the loss of customers or reduced orders, any of which could have an adverse effect on our financial results.

We are continually seeking ways to make our cost structure, business processes and systems more efficient, including moving activities from higher cost to lower cost locations, outsourcing certain business process functions and implementing new business information systems. Problems with the execution of these activities could have an adverse effect on our business or results of operations.

We continuously seek to make our cost structure and business processes more efficient. We are focused on increasing workforce flexibility and scalability, and improving overall competitiveness by leveraging our global capabilities, as well as external talent and skills, worldwide. For example, certain engineering activities and projects that were formerly performed in the U.S. and the U.K. have been moved to lower cost international locations and we rely on partners or third-party service providers for the provision of certain development activities.

The challenges involved with moving or outsourcing activities include executing business functions in accordance with local laws and other obligations while maintaining adequate standards, controls and procedures. We are also subject to increased business continuity risks as we increase our reliance on outsource providers. For example, we may no longer be able to exercise control over some aspects of the future development, support or maintenance of outsourced operations and processes, including the management and internal controls associated with those outsourced business operations and processes, which could adversely affect our business. If we are unable to effectively utilize or integrate and operate with external resources or if our partners or third-party service providers experience business difficulties or are unable to provide business services as anticipated, we may need to seek alternative service providers or resume providing these business processes internally, which could be costly and time-consuming and have a material adverse effect on our operating results. In addition, we may not achieve the expected benefits of our outsourced development and information systems process improvements.

We may be subject to disruptions or failures in our information technology systems and network infrastructures that could have a material adverse effect on us.

We rely on the efficient and uninterrupted operation of complex information technology systems and network infrastructures to operate our business. We also hold large amounts of data in various data center facilities upon which our business depends. A disruption, infiltration or failure of our information technology systems or any of our data centers as a result of software or hardware malfunctions, system implementations or upgrades, computer viruses, third-party security breaches, employee error, theft or misuse, malfeasance, power disruptions, natural disasters or accidents could cause breaches of data security, loss of intellectual property and critical data and the release and misappropriation of sensitive competitive information and partner, customer and employee personal data.

We have recently implemented changes to our business information systems and are now using cloud computing for e-mail and storage of business data. An interruption in service, or unavailability of our cloud based systems, could result in an interruption to our business processes.

Any of these events could harm our competitive position, result in a loss of customer confidence, cause us to incur significant costs to remedy any damages and ultimately materially adversely affect our business and financial condition.

While we have implemented a number of protective measures, including firewalls, antivirus, patches, data encryption, audit logs, routine back-ups with offsite retention of storage media, system audits, data partitioning, routine password modifications and disaster recovery procedures, such measures may not be adequate or implemented properly to prevent or fully address the adverse effect of such events.

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We may identify weaknesses and/or deficiencies with our controls over financial reporting when evaluating these controls for compliance with section 404 of the Sarbanes-Oxley Act.

We are required by Section 404 of the Sarbanes-Oxley Act of 2002 to report annually on our evaluation of our internal controls over financial reporting. Although our assessment, testing, and evaluation resulted in our conclusion that as of November 30, 2013, our internal controls over financial reporting were effective, we cannot predict the outcome of our testing in future periods. If our internal controls are ineffective in future periods, our business and reputation could be harmed. We may incur additional expenses and commitment of management’s time in connection with further evaluations, either of which could materially increase our operating expenses and accordingly reduce our net income.

There are inherent uncertainties involved in estimates, judgments and assumptions used in the preparation of financial statements in accordance with U.S. GAAP. Any changes in estimates, judgments and assumptions could have a material adverse effect on our business, financial position and results of operations.

The consolidated financial statements included in the periodic reports we file with the SEC are prepared in accordance with U.S. GAAP. The preparation of financial statements in accordance with U.S. GAAP involves making estimates, judgments and assumptions that affect reported amounts of assets (including intangible assets), liabilities and related reserves, revenues, expenses and income. Estimates, judgments and assumptions are inherently subject to change in the future, and any such changes could result in corresponding changes to the amounts of assets, liabilities, revenues, expenses and income. Any such changes could have a material adverse effect on our financial position and results of operations.

Changes in securities laws and regulations have increased and may continue to increase our costs and make it more difficult to attract and retain qualified board members and executive officers.

Changes in the laws and regulations affecting public companies, including the provisions of the Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act and rules promulgated by the SEC and the NASDAQ Stock Market LLC, have increased and may continue to increase our expenses as we evaluate the implications of these rules and devote resources to respond to their requirements. The NASDAQ Stock Market LLC, on which our shares are listed, has comprehensive rules and regulations relating to corporate governance. These laws, rules and regulations have increased and will continue to increase the scope, complexity and cost of our corporate governance, reporting and disclosure practices. These developments may also make it more difficult and more expensive for us to obtain director and officer liability insurance in the future, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. Further, our board members, Chief Executive Officer and Chief Financial Officer could face an increased risk of personal liability in connection with the performance of their duties. As a result, we may have difficulty attracting and retaining qualified board members and executive officers, which would adversely affect our business.

If securities or industry analysts do not publish research or reports about our business, or if they change their recommendations regarding our shares adversely, our share price and trading volume could decline.

The trading market for our common shares will be influenced by the research and reports that industry or securities analysts publish about us or our business. If one or more of the analysts who cover us downgrade our shares, our share price would likely decline. If one or more of these analysts cease coverage of our Company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our share price or trading volume to decline.

Fluctuations in the price and volume of shares of technology companies or of listed companies generally could result in the volatility of our share price.

We are a data storage technology company. Stock markets generally have recently experienced extensive price and volume fluctuations, and the market prices of securities of technology companies in particular have experienced fluctuations that often have been unrelated or disproportionate to the operating results of those companies. Our share price has been subject to significant volatility, with a closing price per share on The NASDAQ Stock Market LLC as high as $17.96 and as low as $6.96 during our 2013 and 2012 fiscal years. These market fluctuations are likely to continue to result in extreme volatility in the price of our common shares. You should also be aware that price volatility may be more pronounced if the trading volume of our common shares is low.

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We are incorporated in Bermuda and, as a result, it may not be possible for shareholders to enforce civil liability provisions of the securities laws of the United States.

We are incorporated under the laws of Bermuda and a substantial portion of our assets and the majority of our executive officers and directors are located outside the United States. As a result, it may not be possible for the holders of our common shares to effect service of process upon us or our directors or officers within the United States or to enforce against us or our directors or officers in the United States court judgments based on the civil liability provisions of the securities laws of the United States. In addition, there is significant doubt as to whether the courts of Bermuda would recognize or enforce judgments of United States courts obtained against us or our directors or officers based on the civil liability provisions of the securities laws of the United States or any state thereof. Consequently, there is also significant doubt as to whether the courts of Bermuda would be prepared to entertain an original action in Bermuda based on those laws. We have been advised by our United States and Bermuda legal advisors that the United States and Bermuda do not currently have a treaty providing for the reciprocal recognition and enforcement of judgments in civil and commercial matters. Therefore, a final judgment for the payment of money rendered by any federal or state court in the United States based on civil liability, whether or not based on United States federal or state securities laws, would not be automatically enforceable in Bermuda.

Bermuda law differs from the laws in effect in the United States and may afford less protection to shareholders.

Holders of our common shares may have more difficulty in protecting their interests than would shareholders of a corporation incorporated in a jurisdiction of the United States. We are a Bermuda company and, accordingly, we are governed by the Companies Act 1981 of Bermuda, as amended. The Companies Act differs in certain material respects from laws generally applicable to U.S. corporations and shareholders, including:

·                  Interested director transactions:  Under the terms of our bye-laws, any director, or any director’s firm, partner or any company with whom any director is associated, may act in a professional capacity for the company, other than as auditor, and such director or such director’s firm, partner or such company is entitled to remuneration for professional services. Our bye-laws require that a director who is directly or indirectly interested in a proposed contract or arrangement declare the nature of that interest as required by the Companies Act 1981, but after such a declaration, unless disqualified by the Chairman of the relevant board meeting, such director may vote in respect of any contract or proposed contract or arrangement in which he or she is interested and may be counted in the quorum at such meeting. U.S. companies are generally required to obtain the approval of a majority of disinterested directors or the approval of shareholders before entering into any transaction or arrangement in which any of their directors has an interest, unless the transaction or arrangement is fair to the company at the time it is authorized by the company’s board of directors or shareholders.

·                  Business combinations with interested shareholders:  U.S. companies in general may not enter into business combinations with interested shareholders, namely certain large shareholders and affiliates, unless the business combination has been approved by the board of directors in advance or by a supermajority of shareholders or the business combination meets specified conditions. Under Bermuda law, and under our bye-laws, our board of directors may approve certain business combinations with interested shareholders without the need for a shareholder vote although certain business combinations, such as amalgamations, an arrangement under Bermuda law whereby two corporate entities combine and continue as a combined corporate entity but where neither of the original corporate entities cease to exist, usually require shareholder approval.

·                  Shareholder suits:  The circumstances in which a shareholder may bring a derivative action in Bermuda are significantly more limited than in the United States. In general, under Bermuda law, derivative actions are permitted only when the act complained of is alleged to be beyond the corporate power of the company, is illegal or would result in the violation of the company’s memorandum of association or bye-laws. In addition, Bermuda courts would consider permitting a derivative action for acts that are alleged to constitute a fraud against the minority shareholders or, for instance, acts that require the approval of a greater percentage of the company’s shareholders than those who actually approved them.

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·                  Limitations on directors’ liability:  Our bye-laws provide that each shareholder agrees to waive any claim or right of action he or she may have, whether individually or in the right of the Company, against any director, except with respect to claims or rights of action arising out of the fraud or dishonesty of a director. This waiver may have the effect of barring certain claims against directors arising under U.S. federal securities laws. In general, U.S. companies may limit the personal liability of their directors as long as they acted in good faith and without knowing violation of law.

Our shareholder rights plan and certain provisions of our bye-laws may discourage a change of control.

On December 17, 2012, we adopted a shareholder rights plan that provides for one right for each of our outstanding common shares. The rights are designed to assure that all of our shareholders receive fair and equal treatment in the event of any proposed takeover and to guard against partial tender offers, open market accumulations and other abusive or coercive tactics to gain control of the Company without paying all shareholders a control premium. The rights will cause substantial dilution to a person or group that acquires 15% or more of the common shares on terms not approved by our board of directors.

Our bye-laws contain provisions that could make it more difficult for a third party to acquire us without the consent of our board of directors. These provisions include:

·                  a classified board of directors with staggered three-year terms;

·                  the ability of our board of directors to determine the rights, preferences and privileges of our preference shares and to issue the preference shares without shareholder approval; and

·                  the need for an affirmative vote of the holders of not less than 66% of our voting shares for certain business combination transactions which have not been approved by our board of directors.

These provisions could make it more difficult for a third party to acquire us, even if the third party’s offer may be considered beneficial by many shareholders. As a result, shareholders may be limited in their ability to obtain a premium for their shares.

ITEM 4:  INFORMATION ON THE COMPANY

Item 4.A:  History and Development of the Company

See “Introduction.”

Item 4.B:  Business Overview

The following disclosure applies prior to our acquisition by Seagate Technology.  In connection with the acquisition of Xyratex by Seagate on March 31, 2014, Xyratex is operated as a wholly-owned subsidiary of Seagate and this disclosure does not include changes made to the business as part of Seagate.

Company Overview

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.

Our product and solution portfolio for the enterprise data storage industry includes storage enclosures, integrated application platforms and high performance computing (HPC) data storage solutions. Our HDD based storage subsystems support a range of high-speed interconnect technologies to meet demanding cost and performance specifications. Our modular subsystem architecture allows us to support many segments within the networked storage market by enabling different specifications of storage subsystem designs, including Solid State Drives (SSDs), to be created from a standard set of interlocking technology modules. For example, our ClusterStor™ HPC data storage

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solutions leverage our storage enclosure and application platforms as the hardware basis for the solution. Using data published by an independent research company on the number of petabytes shipped in 2012 and 2013, we estimate that we are responsible for 8% to 10% of the annual worldwide enterprise storage system storage capacity shipments through our original equipment manufacturer (OEM) customer base. (A petabyte is a unit of measure equal to one million gigabytes (GBs) of data.) According to IDC, Xyratex is recognized as the world’s largest OEM supplier by revenue for the last five years (2008-2012) and represented 49.9% of the OEM market share (Source: Worldwide Enterprise Storage Systems 2012 Vendor Shares, IDC, Document #241821, August 2013).

Our capital equipment product portfolio for the HDD industry includes process, inspection and test equipment utilized in drive processing systems (DPS) and drive component technologies (DCT). Our DPS product range includes both fully automated and manual solutions for controlling the HDD operating environment during the final assembly and test of both 2.5 inch and 3.5 inch HDDs. Our DCT product range is composed of automated solutions to process and test HDD components during the manufacturing process. The product range includes substrate and media inspection systems, servo track writers, and head testing, automation, surface attitude measurement, and defect detection systems. We estimate that approximately 50% of the industry’s hard drives are processed on our equipment.

We have over 25 years of experience in research and development relating to HDDs, data storage systems and manufacturing process technology. This experience has enabled us to establish long-term strategic relationships with customers and related technology suppliers. We believe that we have developed a leadership position in the market with a consistent focus on innovation. We have delivered compelling market advantages to our customers through innovation in data storage system and capital equipment products that complement our customers’ core competencies and objectives such as an automated test process solution for the HDD industry and new storage system interface technologies for enterprise data storage systems. Our customers have been able to leverage the time to market and cost/performance benefits of these technologies before many of their competitors. Our leadership position continues to be enhanced with innovation in all of our data storage solutions. These innovations include scalable HPC data storage architectures, integrated power and memory protection modules, greater data center level efficiencies through denser product design, high availability application controllers and software that provides a common interface for an appliance and management software design that can be leveraged across current and new products.

Our patent portfolio continues to reflect our innovation with 327 filings worldwide as of November 30, 2013. In addition, we manage a number of research consortia, with industrial and academic partners, focusing on long term needs of storage system users and markets. Our involvement with these organizations helps to provide insight to the emerging needs of the storage market.

Our technology and design capabilities are complemented by our global manufacturing and configuration services to deliver a customer package unique to the industry. We support our customers through production facilities in; Guadalajara, Mexico; Seremban, Malaysia; and Havant, United Kingdom.

Our design capabilities are complemented by our strategic alliances and partnerships that provide industry technology leadership through organizations such as Open Scalable File Systems (OpenSFS), the European Open File System (EOFS), the Storage Bridge Bay (SBB) working group, the SCSI Trade Association (STA), the Storage Network Industry Association (SNIA) and the International Disk Drive Equipment and Materials Association (IDEMA). We operate close partnerships with key suppliers of both technology and manufacturing services. To expand our available markets and increase interoperability, we embrace international industry standards, including the American National Standards Institute (ANSI) and industry collaborative standards, driving specifications such as SBB working alongside other leaders of the storage industry including Dell, EMC, IBM, NetApp and Seagate Technology.

We sell our enterprise data storage solutions primarily to OEMs, and our HDD capital equipment products primarily to HDD manufacturers or their component suppliers. We form long-term strategic relationships with our customers, which include companies such as Cray, Dell, HP, Hitachi, IBM, Microsoft, NetApp, Seagate Technology and Western Digital. We enter into joint development projects with our key customers and suppliers in order to research and introduce new technologies and products.

We believe that we derive advantages from the technology and skill synergies and requirements throughout our product and solutions portfolio. All of our products require the integration of many types of high-speed HDD technologies into a range of high-density, high-availability, scalable solutions.

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Industry Overview

Worldwide storage demand continues to increase, driving the HDD capacity growth from 393,800 petabytes in 2012 to an expected 1.69 million petabytes by 2017 (Source: Market Trends: Evolving HDD and SSD Storage Landscapes, John Monroe and Joseph Unsworth, Gartner, October 2013). Our customers continue to view data storage as strategic to their business. This is largely driven by the volume of data that is being captured, processed, stored and manipulated as digital information. This information is generated from many sources, including critical business applications (such as e-mail communications and databases) and vertical applications (such as medical imaging, multimedia, cloud computing and HPC), which have collectively fueled an increase in demand for data storage capacity.

The adoption of virtualized technologies, the replication of information to improve recoverability, availability, data retention mandates, as well as the significant growth in the creation and archiving of unstructured data (fixed content) in both traditional business and emerging cloud-based businesses changes the scope and the type of storage systems that need to be deployed to customers. This growing diversification of markets and customers, coupled with the volatility in the market, creates both challenges and opportunities for Xyratex. Additionally, regulatory requirements and company policies requiring data preservation are expanding the use of storage resources in the enterprise. According to recent Gartner data, shipments of enterprise storage in terms of petabytes are expected to increase at a compound annual growth rate (CAGR) of 78.1% from 2012 through 2017; reaching over 923,571 petabytes in 2017 (Source: Forecast: Hard Disk Drives, Worldwide, 2010-2017 4Q13 Update, John Monroe, Gartner, December 2013). The increased demand for electronic data storage is primarily being satisfied by hardware solutions incorporating HDDs, driving an increase in both HDD unit volumes and average storage capacities. NAND Flash based drives, called SSDs, continue to ship in Xyratex and competitive storage systems. While we believe that HDDs will continue to provide the best value for mass storage and will remain the dominant technology for large capacity storage applications for many years to come, SSDs provide a higher performance option for our storage systems. Given the capacity limitations on SSDs, the capacity impact is currently expected to be minimal to the overall forecast, with SSDs expected to contribute approximately 9,433 petabytes, or 7% of enterprise storage, in 2017 (Source: Worldwide Solid State Drive 2013-2017 Update, IDC, Document #240871, May 2013).

In addition to the growth in data volume, the market for data storage products and services is also affected by the variety in data sources and purposes within the enterprise and consumer markets. Businesses face the challenge of managing the accessibility, prioritization, and protection of data in a cost-efficient manner. We believe that the realization that not all data is of equal value is driving a proliferation of disk drive storage and networking technologies developed to address different data management requirements. We also believe that businesses are now increasingly focusing on the issues surrounding increasing power consumption and thermal management to maintain compliance with emerging environmental legislation and to reduce energy costs. Because of the increased storage requirement and proliferation of storage technologies, we believe that there is a growing opportunity for outsourced product and service offerings within the data storage and Information Technology (IT) marketplace.

There are a number of macro drivers that affect the markets we serve and fuel the demand for enterprise data storage solutions and capital equipment, some of which are as follows:

·                  Cloud Computing:  We believe cloud computing brings new architecture demands that are influencing the data storage market. Emerging public cloud service providers have a diverse range of storage requirements which could provide large opportunities for existing OEM customers and potentially a new market opportunity for Xyratex and bulk storage providers. In order to address the needs of cloud computing, cloud service providers must build new data centers that focus on scalability, availability and efficiency. IDC predicts the investment that providers will make in IT cloud services will represent approximately 16% of IT spending in five key areas: applications, system infrastructure software, platform-as-a-service, servers and storage, which will grow the fastest. The spending for public cloud IT Services is expected to increase from $47.4 billion in 2013 to over $100 billion in 2017 (Source: Worldwide and Regional Public IT Cloud Services 2013-2017 Forecast, IDC Document #242464, August 2013). Our data storage solutions are suitable for cloud-based service providers that incrementally need to scale-up or scale-out or both (‘scale-up’ means to add storage resources without adding compute/ performance nodes in a system, ‘scale-out’ means adding compute/performance nodes and often storage resources in a system).

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·                  Big Data:  The emergence of Big Data is increasing the focus on maximizing the value of data collected in the normal course of business. According to research firm Gartner, “Big data in general is defined as high volume, velocity and variety information assets that demand cost-effective, innovative forms of information processing for enhanced insight and decision making”. Research firm IDC reports that the Big Data Technology and Services market is expected to grow to $32.4 billion in 2017 (Source: Worldwide Big Data Technology and Services 2013 — 2017, IDC Document #244979, December 2013). Company estimates suggest that the market for data storage is approximately $864 million based on using the same ratio of data storage to Technology and Services that is used in HPC (18%). The Company sees a convergence between Big Data analytics and the analytics performed in an HPC environment. This is creating demand for flexible compute and storage infrastructure that can serve the needs of both types of applications. The Company expects to address this opportunity with new and enhanced ClusterStor products in 2014.

·                  High Performance Computing:  Storage for HPC is the fastest growing subcategory in the broader HPC market (server, storage, middleware, applications and services) and represents a significant growth opportunity for Xyratex. IDC predicts that storage revenue in the HPC market will grow at 8.2% CAGR through 2017 which will account for $6 billion in revenue and approximately 20% of all HPC expenditures (Source: The Broader HPC Market 2012 — 2017 Forecast, IDC, Document #242742, August 2013). To address this market, Xyratex introduced the ClusterStor 3000 in 2011, the ClusterStor 6000 in 2012 and the ClusterStor 1500 in 2013. The HPC market consists of large government research organizations, educational institutions, defense and intelligence applications. HPC and technical computing is experiencing high levels of adoption in commercial research and development applications such as drug discovery, product development, energy exploration, financial modeling and cloud data analytics.

·                  Tablet and Smart Phone Proliferation:  Mobile devices are driving a change in the IT infrastructure and are also providing new avenues for users to create and consume content. Mobile devices (such as tablets, smart phones and eBook readers) are expected to grow approximately 13% in 2014 and contribute as much as 60% of the overall IT industry’s growth (Source: IDC Predictions 2014: Battles for Dominance — and Survival on the 3rd Platform, IDC, Document #244606, December 2013). Given the limited storage capacity on these devices, we believe the content created and consumed by tablets and smart phones must be stored on either a separate personal device, on an enterprise storage system or in the cloud. We believe this trend is a net positive for Xyratex, as data created by these devices is driving storage demand.

·                  Social Media:  Social networking sites like Facebook, Twitter, Google Plus, YouTube and LinkedIn, provide an outlet for consumers to post user generated content, which is driving significant storage growth. The addition of new users and uploaded content has increased significantly over the last several years. Facebook claims over 1.3 billion users worldwide as of January 1, 2014, up 22% from prior year, who combined post over 300 million photos every day. LinkedIn claims over 200 million active users in 2013, and YouTube claims that users upload 100 hours of new video every minute. The storage needs of this market are served by the traditional storage market as well as the expanding cloud storage environment.

·                  Media and Entertainment:  As with the traditional data center market, the media and entertainment industry has also been experiencing a transition over the last several years with the adoption of high definition (HD) and three-dimensional (3D) technologies, improved computer-generated imagery (CGI), the addition of alternative delivery models (such as video on demand) and digitization and archive of movies and television shows. We believe that the creation and distribution of entertainment content is the largest driver in the growth of digital storage. Acquiring, editing, archiving and distributing digital content together with increasing distribution over the internet and digital cinema technology deployment all require large amounts of storage. Our Integrated Application Platform and storage enclosures allow OEMs to deliver customizable solutions that address the demands of the media and entertainment industry.

·                  Increasing HDD Shipped Capacity:  HDD unit volumes as well as the industry’s transition to higher capacity HDDs directly affect our sales of Drive Processing Systems. Personal computers, personal storage devices, consumer electronics as well as enterprise drives accounted for 579 million units shipped

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in 2012 (Source: Forecast: Hard Disk Drives, Worldwide, 2010-2017 4Q13 Update, John Monroe, Gartner, December 2013). The industry is expected to continue to grow as a result of digital content demand creating a need for low-cost, high capacity solutions which are provided by HDDs. While the number of HDD units sold remains relatively flat at 1.5% CAGR from 2012 to 623 million units in 2017, increases in average drive capacity fuel significant petabyte growth; 33.8% CAGR from 2012 through 2017 (source: Forecast: Hard-Disk Drives, Worldwide, 2010-2017, 4Q13 Update, John Monroe, Gartner, December 2013). Specifically, the transition to higher capacity HDDs increases demand for our DPS equipment because these drives require longer process test and characterization times which results in an increase in the number of servo-fill, serial input-output and interface test cells. We estimate the average HDD capacity to be 681GB in 2012 with forecast growth to 2.72TB in 2017 (source: Forecast: Hard-Disk Drives, Worldwide, 2010-2017, 4Q13 Update, John Monroe, Gartner, December 2013). (A terabyte (TB) is a unit of measure equal to one thousand gigabytes.)

·                  Increasing HDD Component Volumes:  HDD component unit volumes are driven by industry demand for HDD units as well as the number of components per drive. As reported by IDC (source: Worldwide Hard Disk Drive Quarterly Update 3Q13, Summary and Outlook, John Rydning, IDC, Document #244451, November 2013) with slower HDD technology transitions such as heat assisted magnetic recording (HAMR), areal density growth slows down; therefore it seems likely that HDD manufacturers will need to increase the components per drive in order to continue to provide higher capacity drives and keep pace with digital content growth. We believe that this phenomenon will drive further demand for our DCT equipment. (Areal density is the storage capacity per square inch on the recording surface of a disk.)

·                  Introduction of New HDD Technologies:  Enabling the industry to continue providing increasing disk capacities will require innovations such as shingled writing, HAMR, microwave assisted magnetic recording (MAMR), dual stage actuators (DSA) and bit patterned media (BPM). Technologies such as these will enable the continuing growth of areal density while continuing to increase production capacity to satisfy the capacity demand and will therefore require significant capital investments by the industry.

·                  Server Virtualization:  Server virtualization allows for one-to-many virtual servers to be created within one physical server which allows organizations to achieve an earlier return on investment. The adoption of server virtualization has caused server growth to slow down significantly; however, it has increased spending on data storage. We believe that for every dollar that is spent on server virtualization, organizations spend an additional $5 or more on data storage.

Company Products

Our product and technology portfolio includes products designed for the enterprise data storage industry and the HDD industry. Our deep understanding of disk drive technologies, together with the innovation needed to manage and integrate disk drives into test platforms and enterprise systems, is core to Xyratex’s technology and expertise, building on over 25 years of product development. We are seeing increasing advantages from the technology and skill synergies and requirements across our product and solutions portfolio.

Enterprise Data Storage Market

We design, develop and manufacture modular, scalable, high performance, high-density, high-availability, reliable and flexible enterprise data storage solutions. Our products are generally aimed at the enterprise and high performance computing markets where the need for reliability, availability and serviceability (RAS) is important to the viability of the overall solution. These solutions are available as storage enclosures, application platforms and HPC data storage solutions.

OneStor™ Storage Enclosures are modular enclosures that currently house between 12 to 84 enterprise and/or solid state disk drives and support 6Gb/s and 12Gb/s serial attached SCSI (SAS) input/output (I/O) modules that can be updated as new technologies are made available to carry even higher bandwidth from solid state disk (SSD) or hard disk drive (HDD) storage to host connections. Our enclosures provide a common technology platform that reduces qualification time for our OEM customers and includes our management interface software, standardized across enclosures and provides easy integration as new platforms become available. These enclosures reside behind server, or appliance heads, to provide expansion storage. These systems offer our customers the flexibility of utilizing SSD and

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HDD technologies in either the 3.5 inch or 2.5 inch form factors. Our ultra-dense eighty-four drive enclosure is leading the industry with over 16 large form factor drive slots per rack unit height. This enclosure, designed for optimal density, power, cooling, availability and serviceability, we believe positions Xyratex as a leader in this critical segment and provides our OEM customers with an unmatched density advantage over their competitors, critical in markets such as cloud storage and storage for HPC.

OneStor Integrated Application Platforms include the OneStor embedded storage platforms which incorporate embedded server modules into our OneStor storage enclosures using the same standard form factor as our I/O modules and OneStor Storage application platforms which can deliver more processing, memory, and I/O channels to the most demanding storage solutions. All of the integrated application platforms can be deployed as an integrated solution or may leverage our modular enclosures for storage expansion.

These solutions eliminate additional hardware cost, cabling and complexity of installation as well as minimizing footprint requirements. OneStor integrated application platforms deliver enterprise management and serviceability through our Unified Storage Management (USM) software that includes features such as Command Line Interface (CLI) over Local Area Network (LAN), Keyboard/Video/Mouse over IP (iKVM), and an expanded management interface software that is accessible through Intelligent Platform Management Interface (IPMI) or SCSI Enclosure Services (SES) communication standards. Different solutions support different workload/application types, performance requirements, reduction of hardware and serviceability costs. Integrated application platforms are ideal platforms for OEMs to offer their customers more powerful solutions as scale-out storage systems, converged infrastructures, or as part of an integrated computing platform. Various data and storage network connections can be integrated into the storage enclosures, making them excellent platforms to address the requirements of the healthcare, video, IP storage, data de-duplication and cloud storage markets.

ClusterStor HPC data storage solutions are rack-scale solutions that consolidate controllers, our storage enclosures and application platforms, operating system, data protection, Lustre® File System and our scalable management software into a highly optimized scale-out storage platform that can be deployed in hours rather than weeks. These solutions are designed to meet the emerging and future needs of technical computing systems, including the world’s largest supercomputers, such as greater performance scale, higher densities, low power consumption, ease of management, and increased availability and reliability. These solutions are designed from the ground up for high performance computing that focus in areas such as scientific research, simulation, climate modeling and oil and gas exploration. ClusterStor is a new architectural approach in HPC data storage eliminating the bottleneck that previous storage architectures create as organizations grow their environment. ClusterStor 3000 was released in 2011, ClusterStor 6000 was released in 2012 and the ClusterStor 9000 was announced in 2013 to address higher performance and capacity requirements. In June, 2013 the ClusterStor 1500 was released and provides the same key attributes of the rack-scale family, however targeted towards mid-range organizations that have different price/capacity/performance needs.

Our hardware and software design enables us to provide highly modular, energy efficient products both as generic designs and OEM specific derivatives. Our products provide the high speed digital interfaces to HDDs and SSDs using fibre-channel (FC), SAS and serial advanced technology attachment (SATA) technologies. These interfaces are provided with redundancy and enhanced diagnostic capabilities ensuring system availability even during maintenance. Disk drives must be provided with an essentially benign physical environment with effective cooling and mechanical structure to ensure that reliability is not compromised. Improvements in the design and materials ensure maximum efficiency and device management as well as end of life recyclability, all of which combine to provide a more ecologically friendly and power efficient product.

Our enterprise data storage products are internally managed by a range of firmware modules and features. These firmware modules can monitor the performance of the subsystem, create high-availability environments, communicate independently with remote service and support organizations, and integrate seamlessly with our customers’ controlling software and management technology through industry standard interfaces. Increasingly we can provide this firmware both integrated within the product or independently to tightly integrate with OEM customers’ own hardware and software.

A cornerstone of our differentiated manufacturing process is our Integrated Storage Test Process (ISTP) and overall knowledge and HDD expertise. Within our ISTP process, we incorporate a Combined Environmental Reliability Test (CERT), which has been developed leveraging our test knowledge and expertise which has continually evolved to

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integrate the latest available HDD and SSD technology. The process is undertaken on all our storage system products and provides a simulation of how the storage system and its HDDs will perform over an extended period of time. This ISTP process, which includes unit test, functional test and CERT, has been shown to dramatically reduce early life failure rates and potential field returns for our OEM customers.

As an OEM supplier, we extend our overall offering beyond the specific product and view the provision of our manufacturing, supply and delivery process as an essential element of our overall competitive strength.

Our manufacturing operations based in Mexico, Malaysia and United Kingdom are tightly integrated with key suppliers located primarily in lower cost regions, delivering both volume and product mix flexibility and efficiency. The modular manufacturing lines can be easily replicated in the most efficient worldwide location and provide high quality and highly reliable finished goods.

Flexibility in supply has enabled us to support our customers’ growth. For some customers we provide both standard products and highly customized products integrating hardware and software components developed by our customers. We can provide products as component elements or as complete packaged solutions directly shipping to freight consolidators.

Hard Disk Drive Capital Equipment Market

Our capital equipment product portfolio for the HDD industry includes process, inspection and test equipment utilized in Drive Processing Systems (DPS) and Drive Component Technologies (DCT).

Drive Processing Systems.  We design and manufacture a complete range of process test systems that incorporate mechanical and electronic hardware and firmware for controlling the HDD operating environment during the formatting of the disk drive. With over 3.5 million test slots installed worldwide, our DPS for 2.5 inch and 3.5 inch form factor drives enhance overall test quality and factory yields for HDD manufacturers.

·                  Our XMan and XCalibre product families provide dedicated manual and fully automated solutions for both 3.5 inch and 2.5 inch hard drives.

·                  Our Optimus 3500 and 2500 solutions represent our automated high performance product family for both 3.5 inch and 2.5 inch hard drives.

·                  We are expanding our DPS product portfolio to provide an optimized solution for high capacity 3.5 inch hard drives for use within cloud applications.

The test process isolates any magnetic defects within each disk drive during an extensive period of testing that can exceed 100 hours for current generation high capacity HDDs. Our products utilize thermal modulation control with optimized dynamic isolation to create the ideal testing environment for each individual drive. System design accommodates testing of multiple drive types within the same system; allowing maximum drive density and operational flexibility. Our systems can be configured to meet the specific requirements of individual customers and are capable of processing a full range of HDD protocols (high-speed FC, low-cost SATA, advanced technology attachment (ATA), SAS and universal serial bus (USB)) and a range of HDD form factors. These systems can be configured to perform the following processes: drive formatting and qualification, interface electronics verification, and complete servo pattern writing outside a clean room environment.

Drive Component Technologies.  We design and manufacture a complete range of automated solutions to test and process HDD components throughout the manufacturing process.

·                  We design and manufacture complete servo track writers and their key subassemblies and the required automation system, allowing them to be integrated into the customer’s factory. Our solutions are capable of writing digitally generated magnetic reference patterns on the surface of the disks at a very high speed and enable both media writing process in a clean room environment and self-servo writing process within the HDD.

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·                  In addition, our head testing systems provide a range of capabilities related to the read and write head/slider devices throughout the manufacturing process including automated handling transfer and alignment (Polaris platform), surface attitude measurement (Orion platform) and defect detection and inspection (Apollo platform). Our Apollo family now includes a new generation of vision inspection tools.

·                  Our line of substrate and media inspection systems, including our Titan product, represents a unique modular design that combines high sensitivity, integrated, sophisticated defect classification algorithms and defect detection optics with proven high speed automation. These systems can be configured to meet a wide range of process applications by optimizing automation and optical tester selections to meet throughput and sensitivity requirements for critical defect detection to 50 nanometers, making them ideal for high volume production environments.

Sales, Marketing, Support and Distribution

We focus our business development efforts on serving global data storage leaders together with selected emerging customers, particularly those with innovative disruptive technologies. We have a proven history of supporting emerging storage companies and leveraging our product platforms, development expertise, global manufacturing and fulfillment capability.

We market and sell our products primarily to leading OEMs and disk drive manufacturers and also to a small number of other companies. Our ClusterStor solutions are sold through OEM partners and resellers. We provide these solutions to our OEMs in either custom packaging and naming (e.g. Cray Sonexion®) or as a ClusterStor branded solution. We believe that we have a strong sales and marketing model that allows us to develop strategic relationships based on our technical expertise. As part of our sales and marketing activities, we attend industry trade shows and participate in industry associations and customer-sponsored events.

As of November 30, 2013, we had 239 employees involved in sales, marketing and customer support activities.

Our sales and marketing efforts focus on acquiring and deepening our relationships with new and existing customers. Our relationships with new customers frequently begin with supplying key technology components and develop into arrangements for the provision of more comprehensive technology solutions. Our sales cycle is typically long; it can often take in excess of one year for new customers to evaluate our technology before integrating within their products. We also have sales and technical personnel that are based in various geographies to assist the OEM sales force with positioning and selling the ClusterStor solution.

Our worldwide support organization provides presales support to our customers to assist in evaluation and testing of our products and solutions. Additionally we provide ongoing after sale support to our OEM customers. We also provide post sale support services for our ClusterStor solutions on a contract basis. These services include onsite repair, and professional services including installation and optimization.

For enterprise data storage products, following integration, our products often underpin a customer product line and this typically evolves into multiple product refresh cycles for our combined technologies. Many customers leverage our IP and software features in the combined solution which facilitates a stronger partnership.

Our customers are primarily U.S. companies with global operations. We ship to their operations in North America, Asia and Europe. The following table sets forth the percentage of our revenues generated from sales to customers in North America, Asia and Europe for the past three fiscal years.

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Customers

Our business is based on long-term strategic relationships with our customers. To date, we have been successful in cultivating these relationships and have historically experienced a stable customer base. Our major customers are the OEMs that supply storage systems and networking products to the end user, and large corporations that supply HDDs to those OEMs and direct to end users.

Our customers include some of the largest companies in the storage industry and include Dell, Hitachi, HP, IBM, Microsoft, NetApp, Oracle, Seagate Technology, Toshiba and Western Digital, as well as numerous emerging companies. In our 2013 fiscal year, sales to our top six customers accounted for 86% of our revenues. During our 2012 fiscal year, our top six customers accounted for 88% of our revenues. The loss of any of our top customers could significantly harm our financial condition.

We have established relationships with leading HPC providers including Cray, Dell and HP. ClusterStor products are being supplied to the oil and gas, academic, government industries and are making progress in financial, life sciences and media and entertainment markets. Cray sells a variation of the ClusterStor solution under its Sonexion brand name. Cray’s Sonexion customers include the Pawsey Centre and Deutscher Wetterdienst (DWD) (Germany’s National Meteorological Service).

Our contractual relationships with our top customers are governed by framework supply agreements. Actual sales and purchases of our products are made pursuant to individual purchase orders issued under the respective framework supply agreement. Our customers issue purchase orders for the supply of specified products on an as needed basis. Each framework supply agreement sets forth the general terms and conditions governing individual purchase orders, an initial minimum price list for each of our products and a form of forecasted supply schedule for the products to be supplied. The minimum price lists and forecasted supply schedules are non-binding. We frequently issue revised price lists and issue new forecasted supply schedules. The framework supply agreements also:

·                  require us to notify the customer of engineering changes to our products;

·                  provide that we retain intellectual property rights to our products and any improvements to our products and to all foreground intellectual property and technology;

·                  grant the customer a nonexclusive, worldwide, license to use our intellectual property in the customer’s product offerings; and

·                  contain certain non-disclosure, confidentiality, assignment, termination, product and manufacturer’s warranty, inventory consignment, and indemnification provisions.

Our customer partnerships often include the manufacture and supply of customer-developed product elements as well as customization of generic platforms, providing a cohesive bond between ourselves and the customer more than that experienced with standard product sales.

Competition

The market for our products is competitive and we expect this competition to increase. To maintain and improve our competitive position, we must continue to develop and introduce, on a timely and cost-effective basis, new product features and applications that keep pace with technological developments and emerging industry standards and that address the increasingly sophisticated requirements of our customers. The principal competitive factors affecting the market for our products are:

·                  early identification of emerging opportunities;

·                  being first to market with emerging technologies;

·                  complementing customer objectives without competing with customers;

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·                  providing cost-effective solutions;

·                  maintaining high levels of product performance and reliability;

·                  continuously expanding product scalability, flexibility and ease of use;

·                  delivering solutions integrated with customer technology;

·                  integration of data storage hardware with clustered file system and management software;

·                  offering support for emerging high-speed communication protocols; and

·                  increasing localized and responsive customer support on a worldwide basis.

We believe that we compete favorably with respect to each of these factors and have gained significant market share in many of our targeted markets. We believe that our success has been driven by our technological leadership, our significant investment in research and development, our ability to generate customer loyalty and our track record of anticipating market trends.

Our enterprise data storage products compete with products developed by companies active in providing storage subsystems and components to OEMs, including MiTAC, Quanta and Sanmina (doing business as Newisys) together with larger suppliers such as EMC and Hitachi. We also face competition from internal development efforts of existing and potential customers. Such efforts can also be in collaboration with a combination of electronic manufacturing services (EMS), contract electronic manufacturing (CEM) and emerging technology companies. In addition, we face potential competition from new entrants including our current technology suppliers.

Our HPC data storage solutions compete with products developed by other HPC data storage providers, including Data Direct Networks and Panasas, together with larger suppliers such as EMC, NetApp and IBM.

We believe that our capital equipment products compete with products developed by companies providing certain types of capital equipment to the HDD industry. Examples of these companies are Hitachi High-Technologies Corp. and Teradyne, Inc. We also believe that we face competition from internal development efforts of existing and potential customers, in collaboration with their manufacturing and engineering partners.

Manufacturing and Operations

Our operational strategy is to provide production facilities in close proximity to our customer base. Our production facilities are based in Guadalajara, Mexico; Seremban, Malaysia; and Havant, United Kingdom. These facilities share a common SAP Enterprise Resource Planning (ERP) system and integrated processes which are accessible from any location. This enables responsive customer support and provides us with the flexibility to move manufacturing operations from one region to another in order to meet the logistics requirements of our customers. Our production facilities also use common quality control processes which we believe help to ensure that all of our products, irrespective of their place of manufacture, meet the quality expectations of our customers.

We have established strategic relationships with a number of key suppliers for the supply of our core components and subassemblies, including printed circuit board assemblies, HDDs, plastic moldings, power supplies and sheet-metal fabrication. Our production facilities are focused on material planning; high-level assembly operations; system configuration and testing; and customer fulfillment activities.

ISO 9001 Quality Management System Registrations

Xyratex takes its commitment to quality seriously. Our Havant location has been registered to the ISO 9001 Quality Systems Standard since we were founded in December 1994. Our Guadalajara and Seremban locations gained registration in 2012 and 1999 respectively. In 2011 we transitioned to a single global ISO 9001 registration which continues.

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ISO 14001 Environmental Matters

We take our responsibility for the environment seriously, regarding our own activities and those of our suppliers, and endeavor to support the environmental aims and initiatives of our customers. We aim to identify and minimize any negative environmental impacts of our products and business activities, specifically to ensure that we comply with all relevant environmental legislation and regulations, reduce the use of materials, or alternatively re-use, recycle and recover materials to minimize the overall consumption of natural resources and prevent pollution, support our customers in the pursuit of their environmental objectives, communicate appropriately on environmental matters internally and externally, present an image which accurately reflects our environmental performance and objectives and continually improve our environmental performance.

We are registered to ISO 14001 at our Havant and Seremban locations; Havant having been first registered in 2005 with Seremban gaining registration in 2007. We are working towards registration in Guadalajara.

OHSAS 18001 Occupational Health and Safety

We are committed to ensuring the health, safety and welfare of our employees and other persons who may be affected by our activities. Steps are taken to ensure that our statutory duties are met at all times and our processes and systems of work are designed to ensure the health and safety of our staff and customers. Our Havant and Seremban locations gained OHSAS 18001 registration in 2009 and 2011 respectively. We are working towards registration in Guadalajara.

Supply Arrangements

We order parts from our suppliers through purchase orders on an as-needed basis. Each purchase order we issue specifies the component required and any related design specifications and the price for the component based on frequently updated price lists. In addition, with certain suppliers, we have also implemented trading agreements to clarify specific business practices and agreements between ourselves and the supplier. These trading agreements generally do not contractually commit us to order goods or services from these suppliers, nor do they restrict us from obtaining equivalent goods or services from other suppliers. The trading agreements can also:

·                  provide that we retain all rights to intellectual property developed or created for us by our suppliers;

·                  grant the supplier the right to apply for patent protection on any invention developed by the supplier in connection with its supply of components to us and grant us a nonexclusive, worldwide, license to use any patents granted;

·                  contain assignment, termination and confidentiality provisions and quality warranties; and

·                  define any quality and shipping control requirements and define corrective processes, procedures and penalties incurred in managing any exceptions.

We have an agreement with Flextronics International Ltd., one of the largest third-party providers of customized integrated electronic manufacturing and design services, to manufacture electronic printed circuit board assemblies (PCBAs) and certain higher level assemblies for use in our products. We purchase all of the PCBAs used in our products from third party vendors, but maintain PCBA architecture, design and development expertise in-house. We augment this in-house capability with the use of design and development capabilities of third party vendors for specific PCBAs within our products. We work closely with Flextronics and others to effectively manage our electronic PCBA inventory, control component costs and incorporate design upgrades. Our agreement with Flextronics is a trading agreement which sets forth the basic terms of the supply arrangement but does not contractually commit us to order electronic PCBAs from Flextronics. We order electronic PCBAs from Flextronics through purchase orders, as and when required. Our trading agreement with Flextronics:

·                  permits assignment of the trading agreement by us or Flextronics with written consent;

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·                  provides that the trading agreement may be terminated in the event that Flextronics becomes bankrupt or enters into receivership;

·                  prohibits the disclosure of Xyratex confidential information to third parties and requires that Flextronics obtain our prior approval before publicizing or advertising certain products;

·                  contains product quality warranties that require electronic PCBAs supplied by Flextronics to comply with our specifications;

·                  requires compliance with health and safety at work laws and regulations including laws and regulations relating to the control of hazardous substances;

·                  stipulates ownership, use, quality, service and maintenance procedures relating to tooling owned by Xyratex that is used by Flextronics and held at Flextronics’ site;

·                  specifies the carriage and insurance costs to be paid in connection with the delivery of electronic PCBAs and constituent parts; and

·                  sets forth procedures for the provision of notice of the obsolescence of electronic PCBAs or constituent parts.

Research and Development

We have over 25 years of research and development experience in disk drive development, storage systems and manufacturing process technology. We believe that we have been first-to-market with several of our enterprise data storage subsystem and HDD capital equipment products. By delivering innovative technical capability we complement our customers’ core competencies and objectives and, for our HDD capital equipment products, we focus on improving the effectiveness and efficiency of our customers’ production processes.

Our research and development activities are essential to ensure our products remain competitive both economically and technologically as the data storage industry continues to evolve at a rapid pace.

Our core technical expertise covers a number of disciplines:

·                  high speed electronics and interfaces; including current and developing network and storage related data transfer protocols such as FCoE, iSCSI, FC-AL, Ethernet, Infiniband and SAS;

·                  storage application software focused on scale-out file-systems, data protection, operating systems and sophisticated cluster management;

·                  firmware focused on advanced server and enclosure management;

·                  mechanical engineering; critical to ensure optimal performance of disk drives both during manufacturing processes and in data storage subsystems;

·                  electronic, optical and electro-mechanical control systems;

·                  storage application processors; and

·                  system engineering that integrates multiple software, firmware and hardware components with manufacturing capabilities to create complete appliances that customers can easily deploy into production.

We carry out our research and development activities in Havant, United Kingdom; Heathrow, Florida; Fremont, San Francisco and Valencia, California; Kitchener, Canada; Singapore; Seremban, Malaysia; Russia and through outsource providers in Kiev, Ukraine; Hyderabad and Pune, India; and Bucharest, Romania.

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We have made significant investments in research and development throughout our history with aggregate expenditures of $317 million during the last three fiscal years. We have consistently maintained over 25% of our employees in research and development during this period. These employees have an average of over 10 years of experience in research and development.

We typically undertake between 8 to 10 significant research and development efforts each year, in addition to a number of smaller research and development projects. In the year ended November 30, 2013, we engaged in 64 research and development projects. 16 of these projects are focused on developing new technologies or applications, and the remainder are focused on improving existing technologies or applications. We review the status of all of our active research and development projects semi-annually and make adjustments to the investment levels of these projects as needed.

We have continued to invest significantly in research and development projects in 2013. For example, in connection with the enterprise data storage market, we continued to invest in the Lustre file system software, used in our HPC data storage solutions, as well as optimizing a high density 3.5 inch HDD enclosure used by both the HPC and OEM storage products. These products have the potential to be used in cloud applications as well as further OEM storage applications. In connection with the HDD capital equipment market we are developing a new product to more effectively test 3.5 inch HDDs and new products which address the requirements of head and media substrate manufacturing.

Intellectual Property

Our success is dependent upon our ability to develop and maintain the proprietary aspects of our technology and to operate without infringing the proprietary rights of others. We rely on a combination of patent, copyright, trademark and trade secret laws, and generally have intellectual property agreements governing our relationships with our customers, suppliers, employees and consultants. As of November 30, 2013, we had 160 U.S. patents granted, 60 U.S. patents pending, 62 non-U.S. patents granted and 45 non-U.S. patents pending.

In order to enhance our intellectual property, we also seek to acquire or obtain cross-licenses with industry partners. In April 2011, we expanded our cross-license agreement with IBM. This enables us to leverage valuable IBM intellectual property into our product roadmaps.

We use open source software technologies within our ClusterStor products. We manage open source software technologies in an effort to ensure we are protecting proprietary intellectual property while maintaining relationships with the wider community to leverage the community’s collective momentum to the benefit of our product roadmaps.

We have documented internal processes for the management and protection of our intellectual property. These include standard forms for patent filing, design and trademark registration, employee and contractor supplier agreements, and non-disclosure agreements. We file patent applications when we consider patent protection to be the most appropriate and commercially practical means of protecting our intellectual property. We do not generally differentiate our products by their external design features, but we do register designs where we consider it appropriate. Many of our products are differentiated by their unique mechanical designs, which we have taken steps to protect under patent law. Increasingly we are differentiating our products with software design features and have taken steps designed to ensure that open source technologies are kept separated via the use of industry-standard tools embedded in the development processes as well as patenting key features of the software algorithms and design. In addition, we have considerable expertise in the areas of very high-speed electronics.

We sell our data storage enclosures and application platforms primarily to OEMs that incorporate them into their own branded products. We have registered the “Xyratex” and “ClusterStor” trademarks and other trademarks specific to certain of our products.

Legal Proceedings

From time to time, we may become involved in legal proceedings relating to claims arising out of our operations in the normal course of business. In particular, others may assert patent, copyright, trademark and other

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intellectual property rights to technologies that are important to our business or make claims that we infringe their intellectual property.

We are not currently a party to any litigation or arbitration proceedings, nor are we aware of any threatened or potential legal proceedings, which could significantly harm our financial condition.

Item 4.C:  Organizational Structure

Xyratex Ltd is the parent company of the Xyratex Group. Xyratex Ltd directly wholly-owns all the significant subsidiaries in the group with the exception of Xyratex International Inc. and Xyratex Mexico S.A. de C.V., which it wholly owns indirectly. As of March 31, 2014, we are wholly-owned by Seagate Technology International, an indirect subsidiary of Seagate Technology plc.

The following table lists our significant subsidiaries:

Item 4.D:  Properties

Our corporate offices and the center for our European research and development and production operations are located at leased facilities in Havant, United Kingdom. Our North America research and development operations occupy leased facilities in Fremont and Valencia in California, Heathrow in Florida and Kitchener in Canada. We maintain leased production operations in Guadalajara, Mexico. In Asia, we own production and research and development operations in Seremban, Malaysia and lease a research and development facility in Singapore. We also lease office space in Penang, Malaysia, Singapore, China, Thailand, The Philippines and Tokyo, Japan for sales and customer support. The following table lists significant space occupied by us as at January 1, 2014:

ITEM 4A:  UNRESOLVED STAFF COMMENTS

None.

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ITEM 5:  OPERATING AND FINANCIAL REVIEW AND PROSPECTS (MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS)

You should read the following commentary together with the selected historical consolidated financial data set forth in “Part I, Item 3.A: Selected Financial Data” and our consolidated financial statements and the related notes contained elsewhere in this Annual Report. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including but not limited to those set forth in “Part I, Item 3.D: Risk Factors” and elsewhere in this Annual Report.

Overview

We are a leading provider of data storage technology including modular solutions for the enterprise data storage industry and hard disk drive capital equipment. We report our operations in two product segments: Enterprise Data Storage Solutions and Hard Disk Drive (HDD) Capital Equipment.

Our Enterprise Data Storage Solutions products are primarily HDD based storage enclosures and solutions, which we provide to OEMs and our HDD Capital Equipment products consist of HDD manufacturing process equipment, which we sell directly to manufacturers of HDDs. We form long-term strategic relationships with our customers and we support them through our operations in North America, Asia and Europe. In our 2013 fiscal year, sales to our top six customers, IBM, NetApp, Dell, HP, Seagate Technology and Western Digital, accounted for 86% of our revenues with sales to IBM, NetApp, Dell, HP and Seagate Technology accounting for 25%, 20%, 12%, 11% and 11% of our revenues respectively. These were also our top six customers in our 2012 fiscal year and accounted for 88% of our revenues with sales to NetApp, Dell and IBM accounting for 38%, 19% and 15% of our revenues respectively. We had 27 customers which individually contributed more than $0.5 million to revenues in our 2013 fiscal year and 29 in our 2012 fiscal year.

As well as our manufacturing and operational capability, our revenues are highly dependent on our research and development efforts. We enter into joint development projects with our key customers and suppliers in order to research and introduce new technologies and products.

Highlights of 2013

·                  Our overall revenues reduced by 30% in 2013 due primarily to significantly reduced sales of Enterprise Data Storage Solutions products.

·                  Revenues from sales of our Enterprise Data Storage Solutions products decreased by $319 million or 33% in the year primarily due to changes in sourcing by a number of a major customers. This included a $280 million reduction in sales to NetApp as a result of our agreement with NetApp which allowed them to source an increasing proportion of our products from a contract manufacturer.

·                  Revenues from sales of our HDD Capital Equipment products decreased by $26 million or 14%. Our 2012 fiscal year revenues included an estimate of $50 million revenue arising from the replacement of equipment damaged in the 2011 Thailand floods.

·                  Gross margins increased from 16.9% to 21.0% due to increased margins in both our operating segments. Enterprise Data Storage Solutions margins were higher primarily as a result of a more favorable customer and product mix. HDD Capital Equipment gross margins increased primarily due to changes in product mix.

·                  Our operating expenses decreased by 3% reflecting the cost reduction program carried out in 2012, partially offset by increases in expenditure related to new products such as those addressing HPC storage.

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·                  We recorded a net loss of $21 million for the 2013 fiscal year compared to net income of $18 million for our 2012 fiscal year. This included the effect of a $19.2 million tax provision resulting from recording a valuation allowance against UK deferred tax assets. The remainder of the variance was primarily attributable to the significant decrease in Enterprise Data Storage Solutions revenues, partially offset by improved gross margins and lower expenses related to HDD Capital Equipment products.

·                  Our cash balance decreased by approximately $14 million during our 2013 fiscal year to $103 million. This was primarily a result of dividends of approximately $62 million including a special dividend of $54 million. Operating cash inflow was approximately $67 million, resulting primarily from a reduction in working capital related to the lower revenues. We believe that, after providing this return of positive operating cash flows to shareholders, we will still be able to meet our cash requirements at least through the next 12 months.

Revenues

Revenues from sales of products in both of our segments are impacted by underlying increases in the amount of digitally stored information. Our Enterprise Data Storage Solutions revenues are primarily dependent on the worldwide enterprise data storage market, the market share of our OEM customer base, particularly that of key customers, and changes in that customer base. Our HDD Capital Equipment revenues are specifically affected by changes in shipped volume and increases in the individual storage capacity of disk drives. Revenues from these products are subject to significant fluctuations, particularly from quarter to quarter, as they are dependent on the capital investment decisions and installation schedules of our customers.

We experienced a decline in revenue from our Enterprise Data Storage Solutions products in both our 2012 and 2013 fiscal years, primarily due to specific customer factors. Commencing in 2009 we enabled our largest customer, NetApp, to source a proportion of the products we supply under license from a contract manufacturer. This proportion was set at a maximum of 25% for our 2011 fiscal year, increasing to 50% in our 2012 fiscal year and 75% in our 2013 fiscal year with shipments to this customer substantially complete by the end of 2013. We were also impacted by other changes in our customer base in 2012 and 2013 with reductions in revenue due to certain customer programs moving to an in-house solution. In 2013, these reductions have been offset in part by revenue from the introduction of a number of new products and programs including a growth in revenue from our new HPC data storage solution. In the second half of our 2012 fiscal year our revenues were also impacted by a decline in the underlying market, but we believe this market has stabilized in 2013. Our 2014 Enterprise Data Storage Solutions revenues will depend on the offsetting effects of the completion of the NetApp contract and the commencement of new programs and products. Over the longer term, our revenues from our major customers will significantly depend on our ability to continue to develop and manufacture products that compete well with products provided by contract manufacturers and these customers’ own development efforts.

Demand for our HDD Capital Equipment products in the last three fiscal years has been negatively impacted by changes in the underlying market for disk drives, such as a reduction in demand for laptop drives, as well as customer specific factors including the acquisitions by Seagate and Western Digital of the disk drive operations of Samsung and Hitachi, respectively. We estimate that revenue in our 2012 fiscal year included approximately $50 million arising from the replacement of equipment damaged in the October 2011 Thailand floods. The demand for these products declined significantly after July 2012, reflecting continued uncertainty in the underlying demand for HDDs, partly due to weak demand in the global economy. In 2013 we have seen improved demand for products supporting 3.5 inch disk drives and HDD technology changes.

We typically enter into arrangements with our largest customers and provide them with products based on purchase orders executed under these arrangements. These arrangements often include estimates as to future product demand but do not typically specify minimum volume purchase requirements. Due to the complexity of our products, we provide almost all of our products on a build-to-order basis. The prices of our products are generally agreed to in advance and are based on a pre-negotiated pricing model. The pricing model may specify certain product components and component costs as well as anticipated profit margins.

As described above, the unit prices we obtain from our major customers will typically vary with volumes. As products become more mature, prices will generally decline, partly reflecting reduced component costs. We also regularly introduce new products which are likely to incorporate additional features or new technology and these

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products will generally command a higher unit price. Average unit prices will also vary with the mix of customers and products. We have not seen an overall trend in our unit prices over recent fiscal years.

Operating Expenses and Cost Reduction Exercise

In 2011 we experienced a significant decline in HDD Capital Equipment revenues. In response to this we implemented a cost reduction program to reduce fixed costs where we believe we were able to do so without impacting our competitive position. This resulted in restructuring costs of $2.8 million in 2011. The reduction in annual operating expenses relating to this program amounted to approximately $24 million and has been partially offset by an increase in expenses related to Enterprise Data Storage Solutions.

Based on demand expectations for HDD Capital Equipment products in 2013 and beyond, as well as an anticipated further reduction in demand for Enterprise Data Storage Solutions products, we took action during our 2012 fiscal year to reduce expenses supporting these products in our 2013 fiscal year. These actions resulted in restructuring costs of $4.1 million during the second half of our 2012 fiscal year. Approximately $2 million of this amount related to manufacturing overheads, a reduction in which will lessen the impact of lower sales on gross margin. The remaining element of the program resulted in a reduction of approximately $17 million in annual operating expenses. We have undertaken further cost reduction actions in our 2013 fiscal year including the transfer of our North America manufacturing base from California, United States to Mexico and reducing operating expenses relating to Enterprise Data Storage Solutions. We recorded restructuring costs of $3.7 million in our 2013 fiscal year, in connection with these actions. Of this amount $2.1 million will enable a reduction of approximately $15 million in manufacturing overheads which will enable us to maintain gross margins. The total impact of the 2012 and 2013 exercises on operating expenses in our 2013 fiscal year has been broadly offset by increased expenses supporting HPC and other related markets including development of software applications and sales and field support.

Foreign Exchange Rate Fluctuations

The functional currency for all our operations is U.S. dollars and the majority of our revenues and cost of revenues are denominated in U.S. dollars. A significant proportion (approximately $61 million in our 2013 fiscal year) of our non-U.S. dollar operating expenses relates to payroll and other expenses of our U.K. operations. To a lesser extent we are also exposed to movements in the Malaysian Ringgit relative to the U.S. dollar due to our operations in Malaysia. We manage these exchange rate exposures through the use of forward foreign currency exchange contracts. By using these derivative instruments, increases or decreases in our U.K. pound and Malaysian ringgit operating expenses resulting from changes in the U.S. dollar to U.K. pound and Malaysian ringgit exchange rates are partially offset by realized gains and losses on the derivative instruments.

Historically there have been periods of significant volatility in the exchange rate between the U.K. pound and the U.S. dollar. We have hedged the majority of our exposure to this exchange rate movement for approximately one year ahead and we are particularly impacted by the movement in average annual exchange rates. The average value of the U.K. pound relative to the U.S. dollar did not move significantly from 2011 to 2012 and therefore 2013 expenses have not been significantly impacted by changes in exchange rates.

Costs of Revenues and Gross Profit

Our costs of revenues consist primarily of the costs of the materials and components used in the assembly and manufacture of our products, including disk drives, electronic cards, enclosures and power supplies. Other items included in costs of revenues include salaries, bonuses and other labor costs for employees engaged in the component procurement, assembly and testing of our products, warranty expenses, shipping costs, depreciation of manufacturing equipment and certain overhead costs. Our gross profit margins change primarily as a result of fluctuations in our product and customer mix. Our gross margins also change as a result of changes to product pricing, provisions for obsolescence, manufacturing volumes and costs of components.

Research and Development

Our research and development expenses include expenses related to product development, engineering, materials costs and salaries, bonuses and other labor costs for our employees engaged in research and development.

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Research and development expenses include the costs incurred in designing products for our OEM customers, which often occurs prior to their commitment to purchase these products. We expense research and development costs as they are incurred.

Due to the level of competition in the markets in which we operate and the rapid changes in technology, our future revenues are heavily dependent on the improvements we make to our products and the introduction of new products. As in previous fiscal years our expenditure is spread over a significant number of projects. We do not believe that any one of these projects will significantly impact the future success of the overall business. During our 2013 fiscal year, our research and development expenses related to over 64 separate projects covering developing new products, improving existing products, meeting customer specific requirements and entering new markets, such as development of a product to address the HPC market. We commenced shipments of our first HPC product in our 2012 fiscal year and are undertaking a number of projects related to improvements to the software and hardware components of the product to support our aim to increase our market share. As of November 30, 2013, 27% of our employees were engaged in our research and development activities.

Selling, General and Administrative

Selling, general, and administrative expenses include expenses related to salaries, bonuses and other labor costs for senior management and sales, marketing, and administrative employees, IT costs, other marketing and sales expenses and exchange gains and losses.

Share Repurchase Plan, Dividends and Bank Facilities

We announced in March 2011 that we would recommence the share repurchase plan initially approved during the first quarter of 2008 and increased the maximum value of shares that may be repurchased. According to the revised terms of the plan, we may repurchase up to an additional $50 million of the outstanding shares following April 30, 2011. As of November 30, 2012, we had 27.0 million shares outstanding, having repurchased 3.6 million shares in our 2011 fiscal year at an aggregate cost of $32.3 million and 1.2 million shares in our 2012 fiscal year at an aggregate cost of $13.6 million. These amounts have been deducted from Additional Paid in Capital. We did not repurchase any shares in our 2013 fiscal year.

We began a quarterly dividend payment plan with our first dividend in the third quarter of our 2011 fiscal year. The cash dividends declared in fiscal 2011 amounted to an aggregate of $0.11 per share and totaled $3.0 million, of which we paid out approximately $1.5 million in our 2011 fiscal year and the remaining $1.5 million in December 2011. The cash dividends declared in fiscal 2012 amounted to an aggregate of $0.29 per share and totaled $8.0 million. The quarterly cash dividends declared in fiscal 2013 amounted to an aggregate of $0.30 per share and totaled $8.0 million. In addition, in December 2012, we declared and paid a one-time, special cash dividend of $54.0 million or $2.00 per share.

In April 2011, we canceled our credit facilities with HSBC. Prior to this we had multi-currency credit facilities with HSBC totaling $55 million. Our credit facilities had remained unutilized since 2005 and due to our cash balances we decided that the fees associated with maintaining the facilities were an unnecessary cost. HSBC continues to provide us with operational banking facilities including a foreign exchange contract facility. We believe that HSBC, or another banking institution, would favorably consider providing us with new credit facilities in the future if there was a requirement and we were able to comply with usual banking covenants. However, we cannot assure you that such financing would be available to us on acceptable terms or at all.

Provision for Income Taxes

We are subject to taxation primarily in the United Kingdom, the United States and Malaysia.

We have significant loss carryforwards and other deferred tax assets in the United Kingdom and as a result we have not been required to make any significant U.K. tax payments in recent fiscal years. As of November 30, 2012, we retained a deferred tax asset of $15.3 million related to loss carryforwards and other timing differences in the United Kingdom. The overall actual and forecast results of the business when combined with our legal and tax structure, resulted in the judgment of management that at November 30, 2013 the utilization of this asset was no longer probable

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and consequently included in provision for income taxes in our 2013 fiscal year is a $19.2 million valuation allowance against the book value of the asset at that date. As set out in accounting guidance, the recording of cumulative net operating losses over the three year period ended November 30, 2013 in the United Kingdom was a decisive factor in making this judgment.

Our Malaysian operations benefit from a beneficial tax status which has provided us with a zero tax rate on substantially all of our income arising in Malaysia. The beneficial tax status is subject to meeting certain requirements. The beneficial tax status relating to Enterprise Data Storage Solutions products was granted in February 2009 and ends in 2017. The beneficial tax status relating to HDD Capital Equipment products was granted in 2006 and ended in May 2012. We are seeking to obtain future incentives to extend the beneficial arrangements for both product groups and would expect the result of this application to be determined during our 2014 fiscal year. We have recorded a deferred tax asset of $2.1 million related to our Malaysia operations on the basis that the beneficial tax status is not renewed. Of this amount $1.5 million was recorded in our 2012 fiscal year and related to our 2011 fiscal year. We determined that this amount should have been recognized in our 2011 financial statements. We also determined that this amount was not material relative to our 2011 fiscal year or our 2012 fiscal year and therefore we corrected this error as an adjustment in our 2012 fiscal year. If the incentive is renewed the recording of this asset will be reversed and a tax expense of this amount recorded.

As of November 30, 2013, we retained a deferred tax asset of $5.2 million related to loss carryforwards and other timing differences in the United States

In the United Kingdom, included in our loss carryforwards is the benefit of significant research and development tax credits. In July 2013, the U.K. government introduced new rules which have resulted in existing research and development tax credits being replaced by a refundable “research and development expenditure credit” incentive calculated on a similar qualifying criteria basis. This new incentive is treated as a government grant and is deducted from research and development expenses. The effective date of these new rules was April 1, 2013 and we have recorded a deduction from expense of $4.0 million for the eight months ended November 30, 2013. This change in rule will have the effect of increasing U.K. taxable income or reducing U.K. tax losses in periods after April 1, 2013.

Impairment of Intangible Assets

At November 30, 2011, we recorded a $2.2 million non-cash impairment of our intangible assets. We are required by authoritative accounting guidance to test long-lived assets for impairment whenever events or changes in circumstances suggest the carrying value of an asset group is not recoverable. The impairment charge of $2.2 million related to developed technology purchased as part of an acquisition made in December 2010. We determined that the market opportunity for this product had reduced and therefore decided, as part of our overall cost reduction exercise to cease investment in the related product development. We concluded that our remaining intangible assets were not impaired.

At November 30, 2013 we concluded that it is more likely than not that both the HDD Capital Equipment and Enterprise Data Storage Solutions reporting unit fair values are not less than their carrying values and therefore that we did not need to record an impairment of goodwill. For the HDD Capital Equipment reporting unit we reached this conclusion based on the first step of the two step impairment test set out in accounting guidance. The first step involves comparing the carrying value of reporting units, including goodwill, with the estimated fair market value of the reporting units. This test is carried out at the reporting unit level which we determined to be consistent with our business segments. We determine the fair value of the reporting unit through the discounted cash flow approach. The discounted cash flows are based on assumptions consistent with the strategic plan used to manage the underlying business. We made adjustments to the cash flows and discount rate to reflect the fair value of the reporting units implied by our market capitalization after allowing for share price volatility and a control premium. The valuation, incorporating these adjustments, was based on a seven year cash flow model with a long term growth rate of 1%, a discount rate of 16% and a terminal value based primarily on the discount and growth rates.

Results of Operations

The following table sets forth, for the periods indicated, selected operating data as a percentage of revenues.

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Year Ended November 30, 2013 Compared to the Year Ended November 30, 2012

The following is a tabular presentation of our results of operations for the year ended November, 2013 compared to the year ended November 30, 2012. Following the table is a discussion and analysis of our business and results of operations for such periods.

Revenues

The 29.7% decrease in our revenues in the year ended November 30, 2013 compared to the year ended November 30, 2012 was primarily attributable to decreased sales of our Enterprise Data Storage Solutions products.

Revenues from sales of our Enterprise Data Storage Solutions products decreased by approximately $319 million, or 33% in the year ended November 30, 2013 compared to the year ended November 30, 2012. This resulted primarily from a reduction in revenues from certain of our major customers related to changes in their sourcing, as described in the overview, including a $280 million decrease in revenues from our previous largest customer, NetApp, and a reduction of revenue of $121 million from Dell. We believe that demand from these and other customers was also reduced due to weakness in the enterprise storage market. This was partially offset by increased sales related to the introduction of new products and programs including an increase of $33 million in sales of our new HPC products.

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Revenues from sales of our HDD Capital Equipment products decreased by approximately $26 million or 14% in the year ended November 30, 2013 compared to the year ended November 30, 2012. This comprised a $40 million decline in sales of drive processing systems, partially offset by a $14 million increase in sales of drive component products. Our 2012 fiscal year revenues included an estimated $50 million revenue arising from the replacement of equipment damaged in the 2011 Thailand floods.

Cost of Revenues and Gross Profit

The decrease in cost of revenues and gross profit in the year ended November 30, 2013 compared to the year ended November 30, 2012 was primarily due to lower Enterprise Data Storage Solutions revenues. As a percentage of revenues, our gross profit was 21.0% for the year ended November 30, 2013 compared to 16.9% for the year ended November 30, 2012. This higher percentage gross profit was attributable to increased gross margins in both the Enterprise Data Storage Solutions and the HDD Capital Equipment segments.

The gross margin for our Enterprise Data Storage Solutions products increased to 18.7% in the year ended November 30, 2013 from 15.9% in the year ended November 30, 2012. Gross margin increased primarily due to a more favorable customer and product mix, with NetApp comprising a smaller percentage of our total revenues than in the prior year, partially offset by a decrease in gross margin of 1.1% due to the effect of fixed costs relative to lower sales volumes.

The gross margin for HDD Capital Equipment products increased to 30.9% in the year ended November 30, 2013, from 22.4% in the year ended November 30, 2012. This increase results from a number of changes in product mix including shipping a higher proportion of upgrades relative to complete systems and shipping a new product at a lower margin in 2012.

In measuring the performance of our business segments from period to period without variations caused by special or unusual items, we focus on gross profit by product group, which excludes non-cash equity compensation expense of $0.2 million for the year ended November 30, 2013 and $1.0 million for the year ended November 30, 2012. See Note 15 to our consolidated financial statements included elsewhere in this Annual Report for a description of our segments and how we measure segment performance.

Research and Development

The $5.6 million, or 5.4%, decrease in research and development expense in the year ended November 30, 2013 compared to the year ended November 30, 2012 included the effect of a $4.0 million U.K. research and development incentive, as well as a $1.6 million decrease in equity compensation expense, related to employee resignations. A reduction in expenses related to HDD Capital Equipment in connection with the cost reduction exercises described in the overview was substantially offset by increased expense related to Enterprise Data Storage Solutions products, including those supporting the HPC and related markets.

Selling, General and Administrative

Selling, general and administrative expense did not change significantly in the year ended November 30, 2013 compared to the year ended November 30, 2012. The slight increase of $1.0 million, or 1.5%, primarily related to increased sales and marketing expense associated with HPC products, which was partially offset by a $1.1 million decrease in equity compensation expense related the reversal of previously recorded expense due to the effect of employee resignations.

Restructuring Costs

As described in the overview, as a result of actual and forecasted reductions in demand for our HDD Capital Equipment and Enterprise Data Storage Solutions products, we carried out cost reduction programs in both of our 2012 and 2013 fiscal years. The 2013 program resulted in a cost of $3.7 million related to staff reductions. The 2012 program resulted in total restructuring costs of $4.1 million comprising $3.5 million for the cost of staff reductions and $0.6 million of property costs.

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Provision for Income Taxes

The provision for income taxes in the year ended November 30, 2013 of $19.3 million primarily relates to a $19.2 million provision resulting from an impairment of U.K. deferred tax assets as described in the overview. This includes an amount at the end of our 2012 fiscal year of $15.3 million and a U.K. loss recorded in our 2013 fiscal year. In addition this amount reflects the offsetting effects of a reduction in deferred tax resulting from a decrease in the U.K. corporation tax rate from 23% to 20% and an increase in deferred tax due to releasing provisions for uncertain tax positions following the conclusion of enquiries by the U.K. tax authorities into certain aspects of the Company’s 2010 U.K. tax return.

The benefit for income taxes in the 2012 fiscal year included the continuing benefit of incentives in Malaysia, research and development tax credits and a $1.5 million benefit from the recognition of a deferred tax asset for our Malaysian operations as described in the overview. These were partially offset by an expense of $1.1 million due to the effect of the change to the U.K. tax rate from 25% to 23%, reducing the value of our deferred tax asset.

Net Income

The most significant contributors towards the recording of a net loss of $21.2 million for the year ended November 30, 2013 compared to a net income of $17.7 million for the year ended November 30, 2012, were the recording of a $19.2 million valuation allowance against U.K. deferred tax assets and the decrease in revenues in the Enterprise Data Storage Solutions segment. These were partially offset by the gross margin benefit of a change in product mix in the HDD Capital Equipment segment.

Fiscal Year Ended November 30, 2012 Compared to the Fiscal Year Ended November 30, 2011

The following is a tabular presentation of our results of operations for our 2012 fiscal year compared to our 2011 fiscal year. Following the table is a discussion and analysis of our business and results of operations for such periods.

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Revenues

The 20.0% decrease in our revenues in our 2012 fiscal year compared to our 2011 fiscal year was primarily attributable to decreased sales of our Enterprise Data Storage Solutions products.

Revenues from sales of our Enterprise Data Storage Solutions products decreased by approximately $350 million, or 27%. This resulted primarily from a reduction in revenues from certain of our major customers related to changes in their sourcing, including a $158 million decrease in revenues from our largest customer, NetApp, as described in the overview, and reductions of revenue of $102 million and $76 million from Dell and EMC, respectively. We believe that demand from these and other customers was also reduced due to weakness in the enterprise storage market.

Revenues from sales of our HDD Capital Equipment products increased by approximately $61 million, or 49% primarily due to an increase in revenues for disk process products of $73.5 million. As described in the overview, the increase included an estimate of $50 million revenue arising from the replacement of equipment damaged in the Thailand floods.

Cost of Revenues and Gross Profit

The decrease in cost of revenues and in gross profit in the 2012 fiscal year compared to the 2011 fiscal year was primarily due to lower Enterprise Data Storage Solutions revenues. As a percentage of revenues, our gross profit was 16.9% for the 2012 fiscal year compared to 15.3% for the 2011 fiscal year. This change was primarily attributable to the increase in HDD Capital Equipment revenues and margins.

The gross margin for our Enterprise Data Storage Solutions products decreased to 15.9% in the 2012 fiscal year from 16.1% in the 2011 fiscal year. This 1.1% reduction is due to the effect of fixed costs relative to lower sales volumes, partially offset by the net benefit a number of changes to customer and product mix including a 1.0% benefit from one of our major customers purchasing products without HDDs, due to supply constraints. The integration of HDDs, which commands a significantly lower gross margin percentage for us, was subsequently undertaken by this OEM customer.

The gross margin for HDD Capital Equipment products increased to 22.4% in the 2012 fiscal year, from 8.3% in the 2011 fiscal year. This increase resulted from three main factors. Firstly, the effect of fixed costs relative to higher volumes increased gross margin by approximately 8%. Secondly, changes in product mix improved gross margin in 2012 by approximately 3%. Thirdly, the remaining increase primarily related to reduced inventory write-downs.

In measuring the performance of our business segments from period to period without variations caused by special or unusual items, we focus on gross profit by product group, which excludes a non-cash equity compensation charge of $1.0 million for the 2012 fiscal year and $0.8 million for the 2011 fiscal year. See Note 15 to our consolidated financial statements included elsewhere in this Annual Report for a description of our segments and how we measure segment performance.

Research and Development

The $11.9 million, or 10.3%, decrease in research and development expense in the 2012 fiscal year compared to the 2011 fiscal year resulted from a decrease in external project costs of $8.2 million and a decrease in the number of employees of 6%. These were primarily associated with a cost reduction exercise undertaken in 2011 in response to the lower demand for HDD Capital Equipment products described in the overview above.

Selling, General and Administrative

Selling, general and administrative expense increased by $2.1 million, or 3.1%, in the 2012 fiscal year compared to the 2011 fiscal year. This increase related primarily to the inclusion of a $3.6 million exchange gain in the 2011 fiscal year, partially offset by a reduction in employee bonuses. Other staff costs and the average number of employees in these functions did not change significantly as reductions related to the HDD Capital Equipment business were offset by increases in support of new Enterprise Data Storage Solutions products.

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Restructuring Costs

As described in the overview, as a result of an actual and forecast reduction in revenues we carried out cost reduction programs in both of our 2011 and 2012 fiscal years. The 2012 program resulted in total restructuring costs of $4.1 million, consisting of $3.5 million for the cost of staff reductions and $0.6 million of property costs. The 2011 program resulted in a cost of $2.8 million related to staff reductions.

Provision (benefit) for Income Taxes

The benefit for income taxes in the 2012 fiscal year included the continuing benefit of incentives in Malaysia, research and development tax credits and a $1.5 million benefit from the recognition of a deferred tax asset for our Malaysian operations as described in the overview. These were partially offset by an expense of $1.1 million due to the effect of the change to the U.K. tax rate from 25% to 23%, reducing the value of our deferred tax asset.

The provision for income taxes in the 2011 fiscal year primarily related to U.S. income. The remaining income did not give rise to a significant tax provision due to tax incentives in Malaysia, research and development tax credits and the inclusion of a $2.0 million benefit resulting from the successful completion of an investigation into U.K. tax returns for 2007 and 2008.

Net Income

The reduction of net income to $17.7 million for the 2012 fiscal year, compared to $28.3 million for the 2011 fiscal year, was primarily related to the decrease in revenues in the Enterprise Data Storage Solutions segment, including the related decrease in gross margins. This was partially offset by the effect of an increase in HDD Capital Equipment revenues and reduction in operating expenses supporting these products.

Non-GAAP Financial Measures

The following discussion and analysis of our results of operations include certain non-GAAP financial measures as identified in the reconciliation below. The intention in providing these non-GAAP measures is to provide supplemental information regarding our 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.

We believe that the provision of these non-GAAP financial measures is useful to investors and investment analysts because it enables comparison to our 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.

Included in the table below is a reconciliation of the non-GAAP financial measures to the most directly comparable GAAP financial measures as provided above.

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