<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED
December 31, 1993
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
------------------------
COMMISSION FILE
NO. 1-8028
------------------------
CRAY RESEARCH, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
Delaware 39-1161138
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
655A Lone Oak Drive
Eagan, Minnesota 55121 (612) 683-7100
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (REGISTRANT'S TELEPHONE NUMBER)
</TABLE>
------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<CAPTION>
TITLE OF EACH CLASS: NAME OF EACH EXCHANGE ON WHICH REGISTERED:
<S> <C>
Common Stock, $1.00 par value......... New York Stock Exchange,
Boston Stock Exchange, Midwest Stock Exchange,
Pacific Stock Exchange, Philadelphia Stock Exchange
6 1/8% Convertible Subordinated
Debentures due 2011.................. New York Stock Exchange
Common Share Purchase Rights.......... New York Stock Exchange
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None
------------------------
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
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.
Yes /X/ No / /
As of February 28, 1994, 25,966,000 shares of the Registrant's Common Stock
were outstanding. The aggregate market value of the Registrant's voting shares
held by non-affiliates (based upon the closing price therefor on the New York
Stock Exchange on said date) was approximately $782,230,000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's 1993 Annual Report to Stockholders for the year
ended December 31, 1993 are incorporated by reference into Parts I and II.
Portions of the Registrant's definitive Proxy Statement for the 1994 Annual
Meeting of Stockholders to be held on May 17, 1994 are incorporated by reference
into Part III.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART I
ITEM 1 -- BUSINESS
Cray Research, Inc. (the Company) was incorporated in 1972 as a Delaware
corporation. Its principal corporate and administrative offices are located at
655A Lone Oak Drive, Eagan, Minnesota 55121 (telephone (612) 683-7100).
The Company's mission is to provide the leading supercomputing tools and
services to help solve its customers' most challenging problems. The
computational tools created by the Company consist of high-performance computing
systems and related software and are used by scientists and engineers to perform
computational research. Computational research, the mathematical modeling and
simulation of physical and other quantifiable phenomena, allows researchers to
investigate areas that are physically impossible or too time-consuming,
dangerous, or expensive to study in any other way. The Company's computational
tools are used by scientists and engineers in many commercial industries
including aerospace, automotive, chemical/pharmaceutical and petroleum, as well
as in many public and private research centers, such as government and
environmental science organizations and universities.
As of December 31, 1993, the Company had a customer installed base of 321
high-end systems and 184 entry-level systems. Entry-level systems include CRAY
Y-MP EL systems and SPARC-based CRAY Superserver 6400 systems. During 1993, 41
new and 19 used high-end systems were accepted by customers, consisting of 18
new and 19 used CRAY Y-MP systems, 22 new CRAY C90 systems, and one new CRAY T3D
system. Additionally, a total of 41 entry-level systems were accepted by
customers in 1993.
SEGMENT DATA
The industry segments in which the Company currently operates are the
high-performance scientific and commercial segments of the computer industry.
PRODUCTS
The Company's products consist of the CRAY C90, CRAY T3D and the CRAY Y-MP
series of supercomputer systems and related software and peripheral equipment
and SPARC-based CRAY Superserver 6400 systems.
SUPERCOMPUTER SYSTEMS. The Company's supercomputer systems offer multiple
central processing unit (CPU) configurations that operate independently on
separate jobs or in combination on a single job.
The CRAY Y-MP series of supercomputer systems was first introduced by the
Company in 1988. In 1991, the Company began the delivery of enhanced versions of
the original CRAY Y-MP system. In 1992, the Company announced the CRAY Y-MP M90
series of supercomputers which features very large shared memory. In 1991, the
Company introduced the CRAY Y-MP EL entry-level supercomputer system as the
smallest supercomputer in the CRAY Y-MP product line. In 1993, the Company
announced enhancements to the CRAY Y-MP EL product line: the CRAY EL98 and the
CRAY EL92 systems. And in 1994, the CRAY EL94 system was announced. With the
addition of these entry-level products, the Company's product line was extended
to the office environment.
The CRAY C90 series of supercomputer systems was first introduced in late
1991 as the CRAY Y-MP C90 system, the Company's largest and most powerful
supercomputer. At the time of its introduction, the CRAY C90 system was
available in configurations of between eight and sixteen CPUs. In March 1993,
the Company announced the availability of the CRAY C90 system in smaller, lower-
priced configurations and expanded memory.
1
<PAGE>
The Cray T3D system was introduced in September 1993 as the Company's first
massively parallel processing (MPP) supercomputer system. The CRAY T3D system is
a scalable heterogeneous supercomputing system which couples the Company's
traditional parallel vector processing capabilities with massively parallel
processing.
The Company's supercomputer systems span a price range of $150,000 to $74
million.
The following table indicates the number of available CPUs, the CPU cycle
time and the available amount of memory for the Company's supercomputer systems.
CPU cycle time represents the amount of time in which the computer runs through
one complete instruction cycle and is measured in nanoseconds (nsec), or
billionths of a second. Central memory is measured in megawords. One megaword
equals eight megabytes (Mbytes) or eight million bytes.
<TABLE>
<CAPTION>
CPU CLOCK
SUPERCOMPUTER NUMBER CYCLE TIME MEMORY
SYSTEM OF CPUS (IN NSECS) (IN MEGAWORDS)
- ------------------ ----------- ------------- --------------
<S> <C> <C> <C>
CRAY T3D 32 to 2048 6.7 8 per CPU
CRAY C90 1 to 16 4.2 32 to 1024
CRAY Y-MP 1 to 8 6.0 32 to 4096
CRAY Y-MP EL 1 to 8 30.0 32 to 512
</TABLE>
Included as standard equipment on all of the Company's supercomputer systems
is an Input/ Output Subsystem which is capable of transferring data directly to
and from central memory at extremely high speeds without interrupting central
processing operations. The Company's supercomputer systems use the UNICOS
operating system, a proprietary operating system which is based on AT&T's Unix
System V operating system, and are binary-compatible with each other. Binary
compatibility refers to the ability of a computer to run software applications
from other computers without modifications to the software.
CRAY SUPERSERVER 6400 SYSTEM. In October 1993, the Company introduced the
SPARC/Solaris CRAY Superserver 6400 (CS6400) system. The CS6400 system is
designed and manufactured by the Company's wholly-owned subsidiary Cray Research
Superservers, Inc. (CRS). The CS6400 system is a result of a joint technology
agreement and collaboration with Sun Microsystems, Inc. (Sun) signed in January
1992. SPARC is a CPU architecture pioneered by Sun. Solaris is an operating
environment developed by Sun based on AT&T UNIX System V. The CS6400 system uses
an enhanced version of Solaris. The CS6400 system is a binary-compatible upward
extention of Sun's product line. As such, the CS6400 system provides the basis
for the Company's focus on the high-performance commercial computing market, as
well as a seamless interface from the Solaris environment to the Company's
supercomputers. The CS6400 system can be configured with up to 64 SuperSPARC
processors, up to 16 gigabytes (GBytes) of central memory, and over 2 terabytes
(TBytes) of online storage.
PERIPHERAL EQUIPMENT. The Company's Solid-state Storage Device (SSD) is
designed to enhance high-end supercomputer system performance by providing
high-speed access to large datasets and temporary storage for system programs.
Traditional high-speed disk storage units transfer data at rates of up to 20
megabytes per second (Mbytes/sec) compared to a SSD transfer rate of up to 1800
Mbytes/ sec. The SSD is available with memory sizes ranging from 32 megawords to
2048 megawords, at prices ranging from $125,000 to $4.0 million.
In February of 1993, the Company introduced the DD-301, the first
Intelligent Peripheral Interface, 3.5 inch drive product for Cray Research
Supercomputers. Each DD-301 drive delivers a sustained transfer rate of 8.2
Mbytes/sec and has storage capacity of 1.4 Gbytes. The Company also markets
three other high-performance disk drives: the DD-60, the DD-62, and DS-42 disk
subsystem.
2
<PAGE>
With the exception of the CRAY Y-MP EL product line, these disk drives support
the mass storage requirements of the Company's supercomputer products. The DD-60
has a storage capacity of 1.96 Gbytes and a sustained transfer rate of 20
Mbytes/sec. The DD-62 has a data capacity of 2.73 Gbytes and a sustained
transfer rate of 8.1 Mbytes/sec. The DS-42 disk subsystem consists of a disk
controller and a disk cabinet containing up to four DD-42 disk drives. A fully
configured DS-42 disk subsystem has a data capacity of 38.9 Gbytes and a
sustained transfer rate of 9.6 Mbytes/sec. The DS-42 disk subsystem also
supports the mass storage requirements of the Company's previous supercomputer
systems. Prices range from $6,000 for a single DD-301 to $600,000 for one DS-42
disk subsystem.
In November 1993, the Company introduced the Cray Research Network Disk
Array, a bulk storage device designed to reside on high-performance computer
networks. This product provides users with a flexible storage device that
combines high-speed data transfer with the ability to partition the device to
more than one system on the network.
SOFTWARE. The Company's software products primarily include operating
systems, compilers and applications software. The Company also markets various
networking and remote computing/file management software.
The Company's current operating system, the UNICOS 8.0 system, functions
across all of the Company's supercomputer lines, including the CRAY T3D system.
In 1993, the UNICOS operating system was certified as POSIX compliant indicating
that it meets requirements for use in open systems environments.
The CS6400 product line runs the Sun Solaris operating system enhanced by
the Company to improve processor and memory management, incorporate parallel and
batch processing capabilities and accomodate the reliability, availability and
serviceability (RAS) features of the CS6400 system.
The Company's compiler products, Fortran 77, Fortran 90, C, C++ and Ada,
support the programming environment for all the Company's supercomputer systems.
Beginning in 1993, the Company began releasing new versions of its compilers as
a component of a "Programming Environment" -- an integrated software product
that combines the compiler, programming tools and other features in one software
release. Versions of the Company's Fortran 77, Fortran 90, C and Ada compilers
are available in this new Programming Environment.
The Company's applications software products include the UNICHEM and
CRI/TURBOKIVA products. The UNICHEM product is a software environment for
computational chemistry supporting key molecular simulation codes. UNICHEM
Version 2.0, released in 1993, is also distributed by Molecular Simulations,
Inc. for users of workstations and other desktop systems. The CRI/TURBOKIVA
product is a combustion simulation package used by the automotive industry and
is based on Los Alamos National Laboratory's KIVA II program. The latest
version, CRI/TURBOKIVA 2.0, was released in 1993.
In 1993, the Company announced two initiatives designed to oversee
development and marketing of the Company's software on the CS6400 system and on
non-Cray platforms. In July 1993, the Company announced an agreement with Absoft
Corporation to develop software tools that would allow scientists and engineers
to write programs on personal computers and then run them on more powerful
systems, including the Company's systems. In October 1993, the Company launched
CraySoft, an internal software development and marketing initiative. CraySoft's
first product, the Network Computing Environment (NQE), supports the use of a
set of workstations and supercomputing
3
<PAGE>
platforms as a single computational resource, managing distribution of work to
the appropriate platform. Beginning in 1994, CraySoft will market several of the
Company's compiler programming environment software packages for use on the
CS6400 system and non-Cray platforms, including workstations and personal
computers.
In addition to the Company's applications software products, many
third-party software applications are available for use on the Company's
supercomputer systems under the UNICOS operating system and any third-party
software applications that run in a Sun/Solaris operating environment will run
on the CS6400 system.
SOURCES AND AVAILABILITY OF RAW MATERIALS
Most integrated circuits required for the Company's computer systems are
designed by the Company and then manufactured by and purchased from outside
sources. The Company manufactures most of the printed circuit boards and some of
the logic integrated circuits used in its products. Due to the use of advanced
technology components in the Company's products, certain components are
available only from a limited number of suppliers. Significant delays in the
delivery of a substantial number of these components could adversely affect
production schedules, revenues and operating results. The Company believes that
its sources of supply for components are adequate for 1994 production needs.
PATENTS
The Company has obtained patents relating to its computer systems. While the
Company may apply for patents as it develops products and processes which it
believes to be patentable, the Company believes that its success principally
will be dependent upon its ability to design advanced products rather than its
ability to secure patents.
SEASONALITY
The Company's business is not inherently seasonal in nature. However,
operating results are significantly influenced by the timing of the availability
of new products, the number of computer systems accepted within a reporting
period, the configuration of the systems accepted and whether a system is sold
or leased.
MARKETING AND SUPPORT SERVICES
The Company's central marketing activities are located in Eagan, Minnesota
and Cray Research Superservers' marketing is located in Beaverton, Oregon. The
Company markets its computer systems through its own sales force to customers in
North America, Europe, Latin America, the Far East and Australia, and through
independent representatives in the Middle East and the Far East. The Company
also offers products through distributors and re-sellers in selected markets.
The Company offers its systems for sale or lease. Sales include both systems
sold to customers or third-party lessors and certain long-term leases that
qualify for sales accounting treatment. Operating lease terms generally are for
one to three years, with a purchase option entitling the user to a partial lease
payment credit in the event of purchase. These operating leases do not return to
the Company its selling price plus interest charges during the initial
noncancellable term of the lease. In the accounting period in which an operating
lease begins, revenue and earnings are lower than the levels which would be
achieved if the system were sold. Leases also increase cash requirements.
Systems sold to third-party lessors are re-marketed by the Company upon lease
termination on a best efforts basis.
Maintenance and other support services following installation are performed
by hardware engineers and software analysts employed by the Company. Such
services are provided under separate maintenance contracts between the Company
and its customers. These contracts generally provide for maintenance services
for one year and are renewable annually at the customer's election.
4
<PAGE>
BACKLOG
The Company believes backlog information provides only a limited indication
of its expected future revenue. The Company measures backlog using contract
value which is based on selling price for sales orders and the guaranteed cash
flows for lease orders. The contract value of backlog at December 31, 1993 was
$409 million, all of which is expected to be installed in 1994. The contract
value of backlog at December 31, 1992 was $417 million, of which $362 million
was installed in 1993. Included in the total backlog amount at December 31,
1993, are orders from the United States government for systems, peripherals and
upgrades with a total contract value of approximately $109 million; these orders
are cancellable under standard termination for convenience clauses included in
most U.S. government contracts.
COMPETITION
Competition in the computer industry is based primarily on equipment
performance and reliability, manufacturer reputation, software capability and
availability, price, and availability of support services. The Company competes
primarily in the market for high-performance scientific and engineering computer
systems and believes that it holds a competitive advantage in this market. With
the introduction of the CS6400 system in late 1993, the Company will face new
competion in the commercial marketplace. There can be no assurance that levels
of competition within the markets in which the Company competes will not
intensify or that the Company's technological advantages may not be reduced or
lost as a result of technological advances by competitors. Furthermore, some of
the Company's competitors have significantly greater resources than the Company.
The Company's principal competitors include Convex Computer Corporation,
Fujitsu, Ltd., Hewlett Packard, IBM, Intel Corporation, NCR, NEC Corporation,
Silicon Graphics, Inc., and Thinking Machines Corporation.
DEVELOPMENT AND ENGINEERING
The Company is committed to leadership in the high-performance scientific,
commercial and engineering computing systems market, and its continued success
will be largely dependent upon its successful development and introduction of
new products and enhancements to its existing product lines. Such product
development and enhancements depend not only upon the Company's internal
development and engineering activities, but also upon the availability of
advanced technology components from outside suppliers as described under
"Sources and Availability of Raw Materials" above.
The Company's strategy is to continue enhancement of existing products while
devoting substantial resources to the development of new products which are
expected to provide acceptable returns to the Company. The Company's intention
is to spend at least 15% of revenue annually on development and engineering
activities for these products. Development and engineering costs, including
costs of software development, totalled $146 million in 1993, $162 million in
1992 and $143 million in 1991, or 16.3%, 20.3% and 16.6% of revenue in each
respective year.
Hardware development and engineering expenditures in 1993 were focused on
the same areas as in 1992: the Triton, the Company's next generation high-end
parallel vector supercomputer; MPP system development; entry-level system
development; and ongoing Cray C90 development and engineering. The MPP Project
received funding of $12.7 million over a three year period ended in 1993 from
the Advanced Research Projects Agency (ARPA).
In the area of software development, the Company is developing new
applications software and is continuing to enhance and develop its UNICOS
operating system, compilers and application development tools to increase
functionality and performance. The Company also is expanding its network
communications software to provide increased connectivity to other computer
systems. During 1993, the Company completed the development of enhanced versions
of several compiler products and began initiatives to develop selected software
for use on desktop systems and other non-Cray platforms.
5
<PAGE>
ENVIRONMENTAL COMPLIANCE
Compliance by the Company with Federal, state and local environmental
protection laws during 1993 had no material effect upon capital expenditures,
earnings or competitive position and is expected to have none in the foreseeable
future.
EMPLOYEES
As of December 31, 1993, the Company had 4960 full-time employees: 1082 in
development and engineering, 1798 in manufacturing, 728 in marketing and sales,
1157 in field service and 195 in general management and administrative
positions. The Company has never experienced any material work stoppage due to
labor disagreements, and in the opinion of management, the Company's labor
relations are satisfactory. No employees are represented by labor unions.
FINANCIAL INFORMATION ABOUT DOMESTIC AND FOREIGN OPERATIONS
Information concerning revenue, operating profit and identifiable assets by
geographic area for 1993, 1992 and 1991 is included on page 32 of the Company's
1993 Annual Report to Stockholders for the year ended December 31, 1993
(hereinafter the "Annual Report"), which information is incorporated herein by
reference.
The Company's international business is subject to risks customarily
encountered in foreign operations, including fluctuations in monetary exchange
rates, import and export controls and the economic, political and regulatory
policies of foreign governments. While the technological nature of the Company's
products may limit the Company's ability to market its products in some foreign
countries, the Company does not believe its international business is subject to
any special risks.
ITEM 2 -- PROPERTIES
The Company's principal properties are as follows:
<TABLE>
<CAPTION>
LEASE
APPROXIMATE EXPIRATION
LOCATION OF PROPERTY USES OF FACILITY SQUARE FOOTAGE DATE
- --------------------------------- ---------------------------- -------------- ----------
<S> <C> <C> <C>
Chippewa Falls, Wisconsin Manufacturing, engineering, 924,805 Owned
development, and technical
operations.
Eagan, Minnesota Executive offices, software 479,300 Owned
development and training,
corporate marketing.
Mendota Heights, Minnesota General and administrative 118,900 Owned
and sales offices.
Distribution center and 36,200 12/95
other support services.
Beaverton, Oregon Cray Research Superservers, 102,700 11/94
Inc. manufacturing,
marketing and administrative
operations
San Diego, California Cray Research Superservers, 36,400 7/97
Inc. hardware and software
development operations
</TABLE>
6
<PAGE>
The Company also leases approximately 211,100 square feet primarily for
sales and service offices in various domestic locations. In addition, various
foreign sales subsidiaries have leased approximately 152,300 square feet of
office space. The Company believes its manufacturing and sales facilities are
adequate to meet its needs in 1994.
The Company plans to spend approximately $86 million on property, plant and
equipment in 1994. (See also "Financial Review" on pages 22 through 24 of the
Annual Report, which section is incorporated herein by reference.)
ITEM 3 -- LEGAL PROCEEDINGS
There are no legal proceedings pending against or involving the Company
which, in the opinion of management, will have a material adverse effect upon
its consolidated financial position or results of operations.
ITEM 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's stockholders during the
quarter ended December 31, 1993.
EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
NAME AND TITLE AGE BIOGRAPHICAL INFORMATION
- ------------------------- --- ---------------------------------------------------------------------------
<S> <C> <C>
John F. Carlson 55 Chairman and Chief Executive Officer since January 1993. President and
Chairman and Chief Chief Operating Officer from September 1991 to January 1993. Executive Vice
Executive Officer and President and Chief Financial Officer from September 1982 to September
Director 1991.
Andrew Scott 65 Vice Chairman since June 1983. Counsel for the Company since November 1981.
Vice Chairman and
Counsel and Director
Lester T. Davis 63 Chief Operating Officer since January 1993. Chief Technical Officer from
Chief Operating Officer November 1991 to January 1993. Executive Vice President, Chippewa
and Director Operations from November 1981 to January 1993.
Robert H. Ewald 46 Chief Operating Officer, Supercomputer Operations since December 1993.
Chief Operating Officer, Executive Vice President, General Manager of Supercomputer Operations from
Supercomputer Operations January 1993 to December 1993. Executive Vice President, Development from
September 1991 to January 1993. Executive Vice President, Software from
September 1987 to September 1991.
Michael J. Lindseth 40 Chief Financial Officer since September 1991. Vice President, General
Chief Financial Officer Manager Entry-Level Systems from May 1990 to September 1991. Managing
Director, Cray UK Region from April 1988 to May 1990.
Carl W. Diem 46 Senior Vice President, Sales and Marketing since November 1992. Vice
Senior Vice President, President, International Sales from May 1992 to November 1992. Vice
Sales and Marketing President of Marketing Support from November 1990 to May 1992. Senior
Director of Marketing Support from January 1988 to November 1990.
Don F. Whiting 53 Senior Vice President, Operations since December 1993. Executive Vice
Senior Vice President, President, Customer Service from January 1993 to December 1993. Vice
Operations President, Customer Service from May 1991 to January 1993. Vice President,
Managing Director European Operations from June 1990 to May 1991. Vice
President, Manufacturing from June 1981 to June 1990.
Irene M. Qualters 44 Senior Vice President, Software since December 1993. Vice President,
Senior Vice President, Software from September 1991 to December 1993. Vice President, Software
Software Development from November 1990 to September 1991. Software Analyst Manager
from October 1986 to November 1990.
</TABLE>
There are no family relationships among the officers listed, and there are
no arrangements or understandings pursuant to which any of them were elected as
officers. The officers are elected annually by and serve at the pleasure of the
Board of Directors.
7
<PAGE>
PART II
ITEM 5 -- MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
"Investor Information," appearing on page 44 of the Annual Report, is
incorporated herein by reference.
ITEM 6 -- SELECTED FINANCIAL DATA
"Historical Financial Summary," appearing on pages 20 and 21 of the Annual
Report, is incorporated herein by reference.
ITEM 7 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
"Financial Review," appearing on pages 22 through 24 of the Annual Report,
is incorporated herein by reference.
ITEM 8 -- FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated balance sheets of the Company and its subsidiaries as of
December 31, 1993 and 1992 and the related consolidated statements of
operations, cash flows and stockholders' equity for each of the years in the
three-year period ended December 31, 1993, together with the report thereon of
KPMG Peat Marwick dated January 25, 1994, appearing on pages 25 through 41 of
the Annual Report, are incorporated herein by reference.
"Quarterly Financial Data," appearing on page 41 of the Annual Report, also
is incorporated herein by reference.
ITEM 9 -- CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
8
<PAGE>
PART III
ITEM 10 -- DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
IDENTIFICATION OF DIRECTORS
"Election of Directors" in the Company's Proxy Statement for the 1994 Annual
Meeting of Stockholders to be held on May 17, 1994 filed or to be filed
(hereinafter the "Proxy Statement") is incorporated herein by reference.
IDENTIFICATION OF EXECUTIVE OFFICERS
Information regarding executive officers of the Company is contained in Part
I of this Report on page 7 and is incorporated herein by reference.
ITEM 11 -- EXECUTIVE COMPENSATION
"Election of Directors" and "Executive Compensation" in the Proxy Statement
are incorporated herein by reference.
ITEM 12 -- SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
"Voting Securities and Principal Holders Thereof" in the Proxy Statement are
incorporated herein by reference.
ITEM 13 -- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
9
<PAGE>
PART IV
ITEM 14 -- EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
FINANCIAL STATEMENTS
Incorporated by reference into Part II, Item 8 of this Report:
<TABLE>
<CAPTION>
PAGES IN
1993 ANNUAL
REPORT TO
STOCKHOLDERS
--------------
<S> <C>
Independent Auditors' Report............................................................ 25
Consolidated Statements of Operations for the years ended December 31, 1993, 1992 and
1991................................................................................... 26
Consolidated Balance Sheets as of December 31, 1993 and 1992............................ 27
Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1992 and
1991................................................................................... 28
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1993,
1992 and 1991.......................................................................... 29
Summary of Significant Accounting Policies.............................................. 30
Notes to Consolidated Financial Statements.............................................. 32
</TABLE>
FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
PAGE
--------------
<S> <C> <C> <C>
Independent Auditors' Report on Financial Statement Schedules................................. 13
Schedule I -- Marketable Securities and Other Security Investments............... 14
Schedule V -- Property, Plant and Equipment and Leased Systems and
Spares............................................................. 15
Schedule VI -- Accumulated Depreciation and Amortization of Property, Plant and
Equipment and Leased Systems and Spares............................ 16
Schedule X -- Supplementary Statement of Operations Information.................. 17
</TABLE>
All other schedules are omitted because they are not applicable, or not
required, or because the required information is included in the consolidated
financial statements or notes thereto.
REPORTS ON FORM 8-K
The Company was not required to and did not file any reports on Form 8-K
during the three months ended December 31, 1993.
10
<PAGE>
EXHIBITS
<TABLE>
<C> <C> <S>
(3.1) -- Copy of Certificate of Incorporation of the Company as filed with the Delaware
Secretary of State on April 6, 1972, and amendments thereto as filed: (i)
December 22, 1975 and May 14, 1979 (incorporated by reference to Exhibit 4 of
Item 13 to the Company's Registration Statement on Form S-16, as filed with
the Securities and Exchange Commission on October 16, 1980, Registration No.
2-69445); (ii) December 10, 1980 (incorporated by reference to Exhibit 3 of
Item 11 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1980); (iii) May 21, 1985 (incorporated by reference to Exhibit 4
of Item 6 to the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1985); (iv) July 9, 1987 (incorporated by reference to Exhibit 3 of
Item 6 to the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1987); and May 29, 1990 (incorporated by reference to Exhibit 3.1 of
Item 14 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1990).
(3.2) -- Copy of the Company's By-Laws, as amended through January 24, 1994.
(4.1) -- Copy of Indenture dated February 1, 1986 between the Company and Manufacturers
Hanover Trust Company, Trustee, relating to the Company's 6 1/8% Convertible
Subordinated Debentures due 2011 (incorporated by reference to Exhibit 4 of
Item 14 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1985).
(4.2) -- Copy of Common Shares Rights Agreement dated as of May 15, 1989 between Cray
Research, Inc., and Norwest Bank Minnesota, N.A. (incorporated by reference to
the Company's Registration Statement on Form 8-A, dated May 24, 1989, as filed
with the Securities and Exchange Commission, File #1-8028).
(4.3) -- See 3.1 above.
(10.1) -- Copy of Credit Agreement dated May 26, 1992 (incorporated by reference to
Exhibit 10 of Item 6 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1992).
(10.2) -- Copy of 1989 Non-Employee Directors' Stock Option Plan, as amended
(incorporated by reference to Exhibit 10.3 of Item 14 in the Company's Annual
Report on Form 10-K for the year ended December 31, 1991).
(10.3) -- Copy of 1989 Employee Benefit Stock Plan, as amended (incorporated by
reference to Exhibit 10.4 of Item 14 in the Company's Annual Report on Form
10-K for the year ended December 31, 1991).
(10.4) -- Copy of 1985 Incentive Stock Option and Nonstatutory Option Plan, as amended
(incorporated by reference to exhibit 10.5 of Item 14 in the Company's Annual
Report on form 10-K for the year ended December 31, 1991).
(10.5) -- Copy of Annual Incentive Plan, as amended.
(10.6) -- Copy of Executives' Severance Compensation Plan (incorporated by reference to
Exhibit 10.7 of Item 14 in the Company's Annual Report on Form 10-K for the
year ended December 31, 1991).
(10.7) -- Copy of Distribution Agreement dated July 31, 1989 between Cray Research, Inc.
and Cray Computer Corporation (incorporated by reference to Exhibit 2a of Item
7 to the Company's Current Report on Form 8-K dated October 30, 1989).
</TABLE>
11
<PAGE>
EXHIBITS
<TABLE>
<C> <C> <S>
(10.8) -- Copy of License Agreement dated July 31, 1989 between Cray Research, Inc. and
Cray Computer Corporation (patents, technology, software) -- (incorporated by
reference to Exhibit 2c of Item 7 to the Company's Current Report on Form 8-K
dated October 30, 1989).
(10.9) -- Copy of Amendment to License Agreement dated October 24, 1989 between Cray
Research, Inc. and Cray Computer Corporation (incorporated by reference to
Exhibit 2d of Item 7 to the Company's Current Report on Form 8-K dated October
30, 1989).
(10.10) -- Copy of License Agreement dated July 31, 1989 between Cray Research, Inc. and
Cray Computer Corporation (software) -- (incorporated by reference to Exhibit
2e of Item 7 to the Company's Current Report on Form 8-K dated October 30,
1989).
(11) -- Computation of Earnings (Loss) Per Share.
(13) -- 1993 Annual Report to Stockholders.
(22) -- Subsidiaries of the Registrant.
(24) -- Independent Auditors' Consent.
(25) -- Power of Attorney (see the signature page of this Report).
</TABLE>
12
<PAGE>
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULES
The Board of Directors and Stockholders
Cray Research, Inc.:
Under date of January 25, 1994, we reported on the consolidated balance
sheets of Cray Research, Inc. and subsidiaries as of December 31, 1993 and 1992
and the related consolidated statements of operations, cash flows and
stockholders' equity for each of the years in the three-year period ended
December 31, 1993, as contained in the 1993 Annual Report to Stockholders. These
consolidated financial statements and our report thereon are incorporated by
reference in the Annual Report on Form 10-K for the year 1993. In connection
with our audits of the aforementioned consolidated financial statements, we also
have audited the related financial statement schedules as listed in Item 14
herein. These financial statement schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statement schedules based on our audits.
In our opinion, such financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
KPMG Peat Marwick
Minneapolis, Minnesota
January 25, 1994
13
<PAGE>
CRAY RESEARCH, INC. AND SUBSIDIARIES
SCHEDULE I -- MARKETABLE SECURITIES AND
OTHER SECURITY INVESTMENTS
DECEMBER 31, 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
AMOUNT AT
WHICH CARRIED
PRINCIPAL IN BALANCE
TYPE OF INVESTMENT AMOUNT COST MARKET SHEET
- ------------------------------------------------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
Commercial paper................................. $ 50,957 $ 50,957 $ 50,957 $ 50,957
Certificates of deposit.......................... 7,540 7,540 7,540 7,540
Auction rate government securities............... 91,900 91,900 91,900 91,900
Government revenue bonds......................... 18,653 18,653 18,653 18,653
Money market funds............................... 21,921 21,921 21,921 21,921
Other............................................ 13,953 13,953 13,953 13,953
---------- ---------- ---------- -------------
204,924 204,924 204,924 204,924
Less: Long-term investments.................... (157,022) (157,022) (157,022) (157,022)
---------- ---------- ---------- -------------
Short-term investments....................... $ 47,902 $ 47,902 $ 47,902 $ 47,902
---------- ---------- ---------- -------------
---------- ---------- ---------- -------------
<FN>
- ------------------------
Securities of any one individual issuer do not exceed 2% of total assets of the
registrant.
</TABLE>
14
<PAGE>
CRAY RESEARCH, INC. AND SUBSIDIARIES
SCHEDULE V -- PROPERTY, PLANT AND EQUIPMENT AND
LEASED SYSTEMS AND SPARES
(IN THOUSANDS)
<TABLE>
<CAPTION>
TRANSFERS AND
BALANCE AT OTHER BALANCE AT
BEGINNING ADDITIONS RETIREMENTS ADDITIONS END OF
DESCRIPTION OF YEAR AT COST OR SALES (DEDUCTIONS) YEAR
- -------------------------------------------------- ----------- ---------- ------------ ------------- ----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1993:
Property, Plant and Equipment:
Land and improvements......................... $ 22,330 $ 77 $ (133) $ 548 $ 22,822
Buildings and improvements.................... 110,505 1,443 (4,879) 51,295 158,364
Machinery and equipment....................... 160,712 15,099 (5,668) (44,168) 125,975
Data processing equipment..................... 169,706 23,406 (15,048) (12,444) 165,620
Office furniture and equipment................ 21,147 609 (1,589) (306) 19,861
Construction in progress...................... 12,446 5,057 -- (12,134) 5,369
----------- ---------- ------------ ------------- ----------
$ 496,846 $ 45,691 $ (27,317) $ (17,209) $ 498,011
----------- ---------- ------------ ------------- ----------
----------- ---------- ------------ ------------- ----------
Leased Systems and Spares:
Leased systems................................ $ 140,947 $ 47,169 $ (85,502) $ 36,935 $ 139,549
Spares........................................ 150,040 30,791 (6,208) (25,466) 149,157
----------- ---------- ------------ ------------- ----------
$ 290,987 $ 77,960 $ (91,710) $ 11,469 $ 288,706
----------- ---------- ------------ ------------- ----------
----------- ---------- ------------ ------------- ----------
YEAR ENDED DECEMBER 31, 1992:
Property, Plant and Equipment:
Land and improvements......................... $ 20,173 $ 2,079 $ -- $ 78 $ 22,330
Buildings and improvements.................... 108,295 2,105 (804) 909 110,505
Machinery and equipment....................... 139,885 26,355 (7,129) 1,601 160,712
Data processing equipment..................... 159,860 47,981 (18,311) (19,824) 169,706
Office furniture and equipment................ 20,783 1,493 (1,479) 350 21,147
Construction in progress...................... 4,345 10,022 -- (1,921) 12,446
----------- ---------- ------------ ------------- ----------
$ 453,341 $ 90,035 $ (27,723) $ (18,807) $ 496,846
----------- ---------- ------------ ------------- ----------
----------- ---------- ------------ ------------- ----------
Leased Systems and Spares:
Leased systems................................ $ 147,147 $ 52,147 $ (93,883) $ 35,536 $ 140,947
Spares........................................ 140,949 28,890 (1,693) (18,106) 150,040
----------- ---------- ------------ ------------- ----------
$ 288,096 $ 81,037 $ (95,576) $ 17,430 $ 290,987
----------- ---------- ------------ ------------- ----------
----------- ---------- ------------ ------------- ----------
YEAR ENDED DECEMBER 31, 1991:
Property, Plant and Equipment:
Land and improvements......................... $ 17,555 $ 2,051 $ -- $ 567 $ 20,173
Buildings and improvements.................... 111,514 1,554 (3,583) (1,190) 108,295
Machinery and equipment....................... 120,502 19,556 (2,934) 2,761 139,885
Data processing equipment..................... 141,175 43,912 (4,989) (20,238) 159,860
Office furniture and equipment................ 18,829 2,052 (394) 296 20,783
Construction in progress...................... 1,191 6,764 (32) (3,578) 4,345
----------- ---------- ------------ ------------- ----------
$ 410,766 $ 75,889 $ (11,932) $ (21,382) $ 453,341
----------- ---------- ------------ ------------- ----------
----------- ---------- ------------ ------------- ----------
Leased Systems and Spares:
Leased systems................................ $ 148,088 $ 50,828 $ (79,845) $ 28,076 $ 147,147
Spares........................................ 128,387 30,333 (493) (17,278) 140,949
----------- ---------- ------------ ------------- ----------
$ 276,475 $ 81,161 $ (80,338) $ 10,798 $ 288,096
----------- ---------- ------------ ------------- ----------
----------- ---------- ------------ ------------- ----------
</TABLE>
15
<PAGE>
CRAY RESEARCH, INC. AND SUBSIDIARIES
SCHEDULE VI -- ACCUMULATED DEPRECIATION AND AMORTIZATION OF
PROPERTY, PLANT AND EQUIPMENT AND LEASED SYSTEMS AND SPARES
(IN THOUSANDS)
<TABLE>
<CAPTION>
TRANSFERS
BALANCE AT AND OTHER BALANCE
BEGINNING ADDITIONS RETIREMENTS ADDITIONS AT END OF
DESCRIPTION OF YEAR AT COST OR SALES (DEDUCTIONS) YEAR
- ----------------------------------------- ----------- ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1993:
Property, Plant and Equipment:
Land improvements.................... $ 1,006 $ 339 $ (62) $ (2) $ 1,281
Buildings and improvements........... 24,288 9,377 (4,269) 23,924 53,320
Machinery and equipment.............. 100,190 21,175 (4,138) (26,443) 90,784
Data processing equipment............ 100,809 30,316 (13,281) (4,093) 113,751
Office furniture and equipment....... 12,778 2,181 (1,495) (238) 13,226
----------- ----------- ------------ ------------ -----------
$ 239,071 $ 63,388 $ (23,245) $ (6,852) $ 272,362
----------- ----------- ------------ ------------ -----------
----------- ----------- ------------ ------------ -----------
Leased Systems and Spares:
Leased systems....................... $ 101,207 $ 29,292 $ (55,564) $ 20,567 $ 95,502
Spares............................... 93,484 24,120 (5,714) (18,545) 93,345
----------- ----------- ------------ ------------ -----------
$ 194,691 $ 53,412 $ (61,278) $ 2,022 $ 188,847
----------- ----------- ------------ ------------ -----------
----------- ----------- ------------ ------------ -----------
YEAR ENDED DECEMBER 31, 1992:
Property, Plant and Equipment:
Land and improvements................ $ 684 $ 322 $ -- $ -- $ 1,006
Buildings and improvements........... 18,972 6,326 (711) (299) 24,288
Machinery and equipment.............. 79,017 23,722 (3,602) 1,053 100,190
Data processing equipment............ 94,246 28,087 (12,863) (8,661) 100,809
Office furniture and equipment....... 11,342 2,439 (1,375) 372 12,778
----------- ----------- ------------ ------------ -----------
$ 204,261 $ 60,896 $ (18,551) $ (7,535) $ 239,071
----------- ----------- ------------ ------------ -----------
----------- ----------- ------------ ------------ -----------
Leased Systems and Spares:
Leased systems....................... $ 93,196 $ 36,358 $ (51,722) $ 23,375 $ 101,207
Spares............................... 85,032 24,705 (1,100) (15,153) 93,484
----------- ----------- ------------ ------------ -----------
$ 178,228 $ 61,063 $ (52,822) $ 8,222 $ 194,691
----------- ----------- ------------ ------------ -----------
----------- ----------- ------------ ------------ -----------
YEAR ENDED DECEMBER 31, 1991:
Property, Plant and Equipment:
Land improvements.................... $ 371 $ 313 $ -- $ -- $ 684
Buildings............................ 15,453 5,043 (1,128) (396) 18,972
Machinery and equipment.............. 63,140 18,651 (2,474) (300) 79,017
Data processing equipment............ 81,082 26,958 (4,111) (9,683) 94,246
Office furniture and equipment....... 9,487 2,228 (227) (146) 11,342
----------- ----------- ------------ ------------ -----------
$ 169,533 $ 53,193 $ (7,940) $ (10,525) $ 204,261
----------- ----------- ------------ ------------ -----------
----------- ----------- ------------ ------------ -----------
Leased Systems and Spares:
Leased systems....................... $ 94,529 $ 37,598 $ (55,502) $ 16,571 $ 93,196
Spares............................... 76,959 22,098 (368) (13,657) 85,032
----------- ----------- ------------ ------------ -----------
$ 171,488 $ 59,696 $ (55,870) $ 2,914 $ 178,228
----------- ----------- ------------ ------------ -----------
----------- ----------- ------------ ------------ -----------
</TABLE>
16
<PAGE>
CRAY RESEARCH, INC. AND SUBSIDIARIES
SCHEDULE X -- SUPPLEMENTARY STATEMENT OF OPERATIONS INFORMATION
(IN THOUSANDS)
<TABLE>
<CAPTION>
CHARGED TO COSTS AND EXPENSES
YEARS ENDED DECEMBER 31
-------------------------------
1993 1992 1991
--------- --------- ---------
<S> <C> <C> <C>
Maintenance and repairs................................................ $ 18,809 $ 19,860 $ 18,322
<FN>
- ------------------------
Other items requiring disclosure are less than 1% of total revenue.
</TABLE>
17
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CRAY RESEARCH, INC.
By /s/ JOHN F. CARLSON
--------------------------------------
John F. Carlson
Chairman and Chief Executive
Officer
(Principal Executive Officer)
By /s/ MICHAEL J. LINDSETH
--------------------------------------
Michael J. Lindseth
Chief Financial Officer
(Principal Financial Officer)
By /s/ CHARLES T. ROEHRICK
--------------------------------------
Charles T. Roehrick
Corporate Controller
(Principal Accounting Officer)
Dated: March 21, 1994
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
above or below constitutes and appoints John F. Carlson and Michael J. Lindseth,
or either of them, his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments to this Report,
and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or their substitutes, may lawfully do or cause to be done by virtue
hereof.
18
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the Company
in their respective capacities as directors of the Company.
<TABLE>
<CAPTION>
Signature Date
- ---------------------------------------- --------------
<S> <C> <C>
/s/ JOHN F. CARLSON Director March 21, 1994
- ------------------------------------
John F. Carlson
/s/ LESTER T. DAVIS Director March 21, 1994
- ------------------------------------
Lester T. Davis
/s/ LIVIO D. DESIMONE Director March 21, 1994
- ------------------------------------
Livio D. DeSimone
/s/ CATHERINE M. HAPKA Director March 21, 1994
- ------------------------------------
Catherine M. Hapka
/s/ PHILIP G. HEASLEY Director March 21, 1994
- ------------------------------------
Philip G. Heasley
/s/ ROBERT G. POTTER Director March 21, 1994
- ------------------------------------
Robert G. Potter
/s/ ANDREW SCOTT Director March 21, 1994
- ------------------------------------
Andrew Scott
/s/ JAN H. SUWINSKI Director March 21, 1994
- ------------------------------------
Jan H. Suwinski
</TABLE>
19
<PAGE>
EXHIBIT INDEX
EXHIBITS FILED AS ITEM 14 TO THE ANNUAL REPORT OF CRAY RESEARCH, INC. AND
ITS SUBSIDIARIES ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1993.
<TABLE>
<CAPTION>
EXHIBIT PAGE
- --------- -----
<C> <C> <S> <C>
(3.1) -- Copy of Certificate of Incorporation of the Company as filed with the Delaware
Secretary of State on April 6, 1972, and amendments thereto as filed: (i)
December 22, 1975 and May 14, 1979 (incorporated by reference to Exhibit 4 of
Item 13 to the Company's Registration Statement on Form S-16, as filed with the
Securities and Exchange Commission on October 16, 1980, Registration No.
2-69445); (ii) December 10, 1980 (incorporated by reference to Exhibit 3 of Item
11 to the Company's Annual Report on Form 10-K for the year ended December 31,
1980); (iii) May 21, 1985 (incorporated by reference to Exhibit 4 of Item 6 to
the Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
1985); and (iv) July 9, 1987 (incorporated by reference to Exhibit 3 of Item 6
to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
1987); (v) and May 29, 1990 (incorporated by reference to Exhibit 3.1 of Item 14
to the Company's Annual Report on Form 10-K for the year ended December 31,
1990).
(3.2) -- Copy of the Company's By-Laws, as amended through January 24, 1994.
(4.1) -- Copy of Indenture dated February 1, 1986 between the Company and Manufacturers
Hanover Trust Company, Trustee, relating to the Company's 6 1/8% Convertible
Subordinated Debentures due 2011 (incorporated by reference to Exhibit 4 of Item
14 to the Company's Annual Report on Form 10-K for the year ended December 31,
1985).
(4.2) -- Copy of Common Shares Rights Agreement dated as of May 15, 1989 between Cray
Research, Inc., and Norwest Bank Minnesota, N.A. (incorporated by reference to
the Company's Registration Statements on Form 8-A, dated May 24, 1989, as filed
with the Securities and exchange Commission, File #1-8028).
(4.3) -- See 3.1 above.
(10.1) -- Copy of Credit Agreement dated May 26, 1992 (incorporated by reference to
Exhibit 10 of Item 6 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1992).
(10.2) -- Copy of 1989 Non-Employee Directors' Stock Option Plan, as amended (incorporated
by reference to Exhibit 10.3 of Item 14 in the Company's Annual Report on Form
10-K for the year ended December 31, 1991).
(10.3) -- Copy of 1989 Employee Benefit Stock Plan, as amended (incorporated by reference
to Exhibit 10.4 of Item 14 in the Company's Annual Report on Form 10-K for the
year ended December 31, 1991).
(10.4) -- Copy of 1985 Incentive Stock Option and Nonstatutory Option Plan, as amended
(incorporated by reference to Exhibit 10.5 of Item 14 in the Company's Annual
Report on Form 10-K for the year ended December 31, 1991).
(10.5) -- Copy of Annual Incentive Plan, as amended.
(10.6) -- Copy of Executives' Severance Compensation Plan (incorporated by reference to
Exhibit 10.7 of Item 14 in the Company's Annual Report on Form 10-K for the year
ended December 31, 1991).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE
- --------- -----
<C> <C> <S> <C>
(10.7) -- Copy of Distribution Agreement dated July 31, 1989 between Cray Research, Inc.
and Cray Computer Corporation (incorporated by reference to Exhibit 2a of Item 7
to the Company's Current Report on Form 8-K dated October 30, 1989).
(10.8) -- Copy of License Agreement dated July 31, 1989 between Cray Research, Inc. and
Cray Computer Corporation (patents, technology, software) -- (incorporated by
reference to Exhibit 2c of Item 7 to the Company's Current Report on Form 8-K
dated October 30, 1989).
(10.9) -- Copy of Amendment to License Agreement dated October 24, 1989 between Cray
Research, Inc. and Cray Computer Corporation (incorporated by reference to
Exhibit 2d of Item 7 to the Company's Current Report on Form 8-K dated October
30, 1989).
(10.10) -- Copy of License Agreement dated July 31, 1989 between Cray Research, Inc. and
Cray Computer Corporation (software) -- (incorporated by reference to Exhibit 2e
of Item 7 to the Company's Current Report on Form 8-K dated October 30, 1989).
(11) -- Computation of Earnings (Loss) Per Share.
(13) -- 1993 Annual Report to Stockholders.
(22) -- Subsidiaries of the Registrant.
(24) -- Independent Auditors' Consent.
(25) -- Power of Attorney (see the signature page of this Report).
</TABLE>
<PAGE>
EXHIBIT 3.2
AMENDED January 24, 1994
CRAY RESEARCH, INC.
BY-LAWS, AS AMENDED
ARTICLE I
OFFICES
SECTION 1. The registered office shall be in the City of Wilmington,
County of New Castle, State of Delaware.
SECTION 2. The Corporation may also have offices at such other places both
within and without the State of Delaware as the Board of Directors may from time
to time determine or the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. All meetings of the stockholders for the election of Directors
or for any other purpose shall be held at such place either within or without
the State of Delaware as shall be designated from time to time by the Board of
Directors and stated in the notice of the meeting, or in a duly executed waiver
of notice.
SECTION 2. Annual meetings of stockholders shall be held each year on such
date in such month and at such time as shall be designated from time to time by
the Board of Directors and stated in the notice of the meeting, at which they
shall elect a Board of Directors and transact such other business as may
properly be brought before the meeting.
SECTION 3. Written notice of the annual meeting stating the place, date
and hour of the meeting shall be given to each stockholder entitled to vote at
such meeting not less than ten nor more than sixty days before the date of the
meeting.
SECTION 4. The officer who has charge of the stock ledger of the
Corporation shall prepare and make, at least ten days before each meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
The list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not specified, at the place where the meeting is to be held. The
list shall also be produced and kept at the time and place of the meeting during
the whole time thereof, and may be inspected by any stockholder present.
SECTION 5. Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the certificate of
incorporation, may be called by the President and shall be called by the
President or Secretary at the request in writing of a majority of the Board of
Directors, or at the request in writing of stockholders owning a majority in
amount of the entire capital stock of the Corporation issued and outstanding and
entitled to vote. Such request shall state the purpose or purposes of the
proposed meeting.
1
<PAGE>
SECTION 6. Written notice of a special meeting stating the place, date and
hour of the meeting and the purpose or purposes for which the meeting is called,
shall be given not less than ten or more than sixty days before the date of the
meeting to each stockholder entitled to vote at such meeting.
SECTION 7. Business transacted at any special meeting of stockholders
shall be limited to the purposes stated in the notice.
SECTION 8. The holders of a majority of the stock issued and outstanding
and entitled to vote, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute or by the certificate of
incorporation. If, however, such quorum shall not be present or represented at
any meeting of the stockholders, the stockholders entitled to vote thereat,
present in person or represented by proxy, shall have power to adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present or represented. At any such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified. If the adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
SECTION 9. When a quorum is present at any meeting, the vote of the
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes or of
the certificate of incorporation a different vote is required, in which case
such express provision shall govern and control the decision of such question.
SECTION 10. Unless otherwise provided in the certificate of incorporation
each stockholder shall at every meeting of the stockholders be entitled to one
vote in person or by proxy for each share of the capital stock having voting
power held by such stockholder, but no proxy shall be voted on after three years
from its date, unless the proxy provides for a longer period.
SECTION 11. Unless otherwise provided in the certificate of incorporation,
any action required to be taken, or any action which may be taken, at any annual
or special meeting of such stockholders may be taken without a meeting, without
prior notice and without a vote if a consent in writing, setting forth the
action so taken, shall be signed by the holders of outstanding stock having not
less than a minimum number of votes that would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote thereon were
present and voted. Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
ARTICLE III
DIRECTORS
SECTION 1. The Board of Directors shall consist of not less than seven (7)
nor more than eleven (11) members as determined from time to time by the Board
of Directors. The Directors shall be elected at the annual meeting of
stockholders except as provided in Section 2 of this Article, and each Director
elected shall hold office until his successor is elected and qualified. Election
of Directors need not be by written ballot.
SECTION 2. Vacancies and newly created directorships resulting from any
increase in the authorized number of Directors may be filled by a majority of
the Directors then in office, though less than a
2
<PAGE>
quorum, or by a sole remaining Director, and the Directors so chosen shall hold
office until the next annual election and until their successors are duly
elected and qualified. If there are no Directors in office, then an election of
Directors may be held in the manner provided by statute.
SECTION 3. The business of the Corporation shall be managed by its Board
of Directors, which may exercise all such powers of the Corporation and do all
such lawful acts and things as are not by statute or by the certificate of
incorporation or by these By-laws directed or required to be exercised or done
by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
SECTION 4. The Board of Directors of the Corporation may hold meetings,
both regular and special, within or without the State of Delaware.
SECTION 5. The first meeting of each newly elected Board of Directors
shall be held immediately following the annual meeting of stockholders, and no
notice of such meeting shall be necessary to the newly elected Directors in
order to constitute the meeting, provided a quorum shall be present.
SECTION 6. Regular meetings of the Board of Directors may be held without
notice at such time and at such place as shall from time to time be determined
by the Board.
SECTION 7. Special meetings of the Board may be called by the President on
three (3) days' notice to each Director, either personally or by mail or by
telegram; special meetings shall be called by the President or Secretary in like
manner and on like notice on the written request of two (2) Directors.
SECTION 8. At all meetings of the Board, a majority of Directors shall
constitute a quorum for the transaction of business, and the act of a majority
of the Directors present at any meeting at which there is a quorum shall be the
act of the Board of Directors, except as may be otherwise specifically provided
by statute or by the certificate of incorporation. If a quorum shall not be
present at any meeting of the Board of Directors, the Directors present may
adjourn the meeting from time to time without notice other than announcement at
the meeting until a quorum shall be present.
SECTION 9. Unless otherwise restricted by the certificate of incorporation
or these By-laws, any action required or permitted to be taken at any meeting of
the Board of Directors or of any committee thereof may be taken without a
meeting if all members of the Board or committee consent thereto in writing, and
the writing or writings are filed with the minutes of proceedings of the Board
or committee.
COMMITTEES OF DIRECTORS
SECTION 10. The Board of Directors may, by resolution passed by a majority
of the whole Board, designate one or more committees, each committee to consist
of one or more of the Directors of the Corporation. The Board may designate one
or more Directors as alternate members of any committee, who may replace any
absent or disqualified member at any meeting of the committee. Any such
committee, to the extent provided in the resolution of the Board of Directors,
shall have and may exercise all the powers and authority of the Board of
Directors in the management of the business and affairs of the Corporation, and
may authorize the seal of the Corporation to be affixed to all papers which may
require it; but no such committee shall have the power or authority in reference
to amending the certificate of incorporation, adopting an agreement merger or
consolidation, recommending to the stockholders the sale, lease exchange of all
or substantially all of the Corporation's property and assets, recommending to
the stockholders a dissolution of the Corporation or a revocation of a
dissolution, or amending the By-laws of the Corporation; and, unless the
resolution or the certificate of incorporation
3
<PAGE>
expressly so provide, no such committee shall have the power or authority to
declare a dividend or to authorize the issuance of stock. Such committee or
committees shall have such name or names as may be determined from time to time
by resolution adopted by the Board of Directors.
SECTION 11. Each committee shall keep regular minutes of its meetings and
report the same to the Board of Directors when required.
COMPENSATION OF DIRECTORS
SECTION 12. The Board of Directors shall have the authority to fix the
compensation of Directors. The Directors may be paid their expenses of
attendance at each meeting of the Board of Directors, and may be paid a fixed
sum for attendance at each meeting of the Board of Directors or a stated salary
as Director. No such payment shall preclude any Director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
ARTICLE IV
NOTICES
SECTION 1. Whenever, under the provisions of the statutes or of the
certificate of incorporation or of these By-laws, notice is required to be given
to any Director or stockholder, it shall not be construed to require personal
notice, but such notice may be given in writing, by mail or telegram, addressed
to such Director or stockholder at his address as it appears on the records of
the Corporation, with postage thereon prepaid, and such notice shall be deemed
to be given by mail at the time when deposited in the United States mail, and by
telegram at the time when dispatched to such Director or stockholder.
SECTION 2. Whenever any notice is required to be given under the
provisions of the statutes or of the certificate of incorporation or of these
By-laws, a waiver thereof in writing, signed by the person or persons entitled
to said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE V
OFFICERS
SECTION 1. The Executive Officers of the Corporation shall be chosen by
the Board of Directors and may include a Chairman of the Board, a Vice Chairman
of the Board, a President, one or more Executive Vice Presidents, and one or
more Senior Vice Presidents. The Board of Directors may also designate a Chief
Executive Officer, Chief Operating Officer, Chief Technical Officer, and Chief
Financial Officer. The officers of the Corporation who are not executive
officers shall be appointed by the Chief Executive Officer of the Corporation
and shall include a Secretary, a Treasurer and a Controller and may include one
or more Vice Presidents, Senior Vice Presidents and officers with such other
distinguishing identification as the Chief Executive Officer of the Corporation
deems desirable. The Chief Executive Officer of the Corporation may also choose
one or more assistant secretaries and assistant treasurers and such other
officers and agents as he shall deem necessary, who shall hold their offices for
such terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the Chief Executive Officer of the Corporation.
Any number of offices may be held by the same person, unless the certificate of
incorporation or these By-laws otherwise provide.
SECTION 2. The Board of Directors at its first meeting after each annual
meeting of stockholders shall choose the executive officers of the Corporation.
4
<PAGE>
SECTION 3. The Chief Executive Officer of the Corporation shall advise the
Board of any appointment of officers who are not executive officers, and the
appointment shall be noted in the minutes of the Board. Each officer appointed
by the Chief Executive Officer shall have such title, shall serve in such
capacity and shall have such authority to perform such duties as the Chief
Executive Officer of the Corporation shall determine. Executive officers of the
Corporation may also serve in appointed capacities if so designated by the Chief
Executive Officer of the Corporation.
SECTION 4. The salaries of all executive officers of the Corporation shall
be fixed by the Board of Directors. The salaries of appointed officers of the
Corporation shall be as determined by the Chief Executive Officer.
SECTION 5. The officers of the Corporation shall hold office until their
successors are chosen and qualify. Any executive officer may be removed at any
time by the affirmative vote of a majority of the Board of Directors. Any
officers appointed by the Chief Executive Officer may be removed at any time by
the Chief Executive Officer. Any vacancy occurring in any executive office of
the Corporation may be filled by the Board of Directors. Any vacancy arising
with respect to any appointed office may be filled by the Chief Executive
Officer.
THE PRESIDENT
SECTION 6. The President, if one is designated, shall be the Chief
Operating Officer of the Corporation and shall act under the direction of the
Chief Executive Officer.
SECTION 7. The President, if one is designated, shall execute bonds,
mortgages and other contracts requiring a seal, under the seal of the
Corporation, except where required or permitted by law to be otherwise signed
and executed and except where the signing and execution thereof shall be
expressly delegated by the Board of Directors to some other officer or agent of
the Corporation.
THE VICE PRESIDENTS
SECTION 8. In the absence of the President, (or Chairman of the Board if
no President has been designated) or in the event of his inability or refusal to
act, an Executive Vice President designated by the Board (or in the event there
be more than one Executive Vice President, such Executive Vice Presidents in the
order designated, or in the absence of any designation, then in the order of
their election) shall perform the duties of the President, and when so acting,
shall have all the powers of and be subject to all the restrictions upon the
President. Executive Vice Presidents shall perform such other duties and have
such other powers as the Board of Directors may from time to time prescribe.
Vice Presidents who are not Executive Vice Presidents shall perform such other
duties and have such other powers as the Board or the Chief Executive Officer
may determine.
THE SECRETARY AND ASSISTANT SECRETARY
SECTION 9. The Secretary shall attend all meetings of the Board of
Directors and all meetings of the stockholders and record all the proceedings of
the meetings of the Corporation and of the Board of Directors in a book to be
kept for that purpose, and shall perform like duties for the standing committees
when required. He shall give, or cause to be given, notice of all meetings of
the stockholders and special meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of Directors or
President. He shall have custody of the corporate seal of the Corporation, and
he shall have authority to affix the same to any instrument requiring it and
when so affixed may be attested by his signature. The Board of Directors may
give general authority to any other officer to affix the seal of the Corporation
and to attest the affixing by his signature.
5
<PAGE>
SECTION 10. An Assistant Secretary shall, in the absence of the Secretary
or in the event of his inability or refusal to act, perform the duties and
exercise the powers of the Secretary and shall perform such other duties and
have such other powers as the Board of Directors or the Chief Executive Officer
may from time to time prescribe.
THE TREASURER
SECTION 11. The Treasurer shall have the custody of the corporate funds
and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation, and shall deposit all
moneys and other valuable effects in the name and to the credit of the
Corporation in such depositories as may be designated by the Board of Directors.
SECTION 12. The Treasurer shall secure and disburse funds of the
Corporation as authorized by the Board of Directors, maintaining appropriate
records of all such transactions.
SECTION 13. If required by the Board of Directors, the Treasurer shall
give the Corporation a bond in such sum and with such surety or sureties as
shall be satisfactory to the Board of Directors for the faithful performance of
those duties.
SECTION 14. The Treasurer shall also perform such other duties and have
such other powers as the Board of Directors or the Chief Executive Officer may
from time to time prescribe.
CHAIRMAN OF THE BOARD
SECTION 15. The Chairman of the Board shall be the Chief Executive Officer
of the Corporation with responsibility for general management of the business of
the Corporation, shall see that all orders and resolutions of the Board of
Directors are carried into effect, and shall preside at all meetings of the
Board of Directors and the stockholders. If no President has been designated by
the Board of Directors, the Chairman of the Board shall assume the duties of the
President.
CONTROLLER
SECTION 16. The Controller shall be the Chief Accounting Officer of the
Corporation, with responsibility for establishing appropriate accounting
policies and procedures and the implementation of internal controls systems, and
shall render to the Board of Directors statements of the financial condition of
the Corporation.
VICE CHAIRMAN OF THE BOARD
SECTION 17. The Vice Chairman of the Board shall perform such duties
specified by, and act in the absence of, the Chief Executive Officer.
ARTICLE VI
CERTIFICATE OF STOCK
SECTION 1. Every holder of stock in the Corporation shall be entitled to
have a certificate, signed by the Chairman of the Board of Directors or the
President, and the Secretary or an Assistant Secretary of the Corporation,
certifying the number of shares owned by him in the Corporation.
SECTION 2. Any of or all the signatures on the certificate may be
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a
6
<PAGE>
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the Corporation with the
same effect as if he were such officer, transfer agent or registrar at the date
of issue.
TRANSFERS OF STOCK
SECTION 3. Upon surrender to the Corporation, or the transfer agent of the
Corporation, of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, it shall be the
duty of the Corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
REGISTERED STOCKHOLDERS
SECTION 4. The Corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividends, and to vote as such owner, the person registered on its books as the
owner of shares, and shall not be bound to recognize any equitable or other
claim to or interest in such share or shares on the part of any other person,
whether or not it shall have express or other notice thereof, except as
otherwise provided by the laws of Delaware.
ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
SECTION 1. Dividends upon the capital stock of the Corporation may be
declared by the Board of Directors at any regular or special meeting, pursuant
to law. Dividends may be paid in cash, in property, or in shares of capital
stock.
SECTION 2. Before payment of any dividend, there may be set aside out of
any funds of the Corporation available for dividends such sum or sums as the
Directors from time to time, in their absolute discretion, determine proper as a
reserve or reserves to meet contingencies, or for such other purpose as the
Directors shall think conducive to the interest of the Corporation, and the
Directors may modify or abolish any such reserve in the manner in which it was
created.
FISCAL YEAR
SECTION 3. The fiscal year of the Corporation shall be fixed by resolution
of the Board or Directors.
SEAL
SECTION 4. The corporate seal shall have inscribed thereon the name of the
Corporation and the words "Corporate Seal, Delaware". The seal may be used by
causing it or a facsimile thereof to be impressed, affixed, or reproduced.
ARTICLE VIII
INDEMNIFICATION
The Corporation shall indemnify its officers, Directors, employees and
agents to the extent permitted by the General Corporation Law of Delaware, and
shall advance expenses to its officers and Directors to the extent permitted
thereunder.
7
<PAGE>
ARTICLE IX
AMENDMENTS
These By-laws may be altered, amended or repealed or new By-laws adopted by
the Board of Directors at any regular meeting of the Board of Directors, or at
any special meeting of the Board of Directors if notice of such alteration,
amendment, repeal or adoption is contained in the notice of such special
meeting.
8
<PAGE>
EXHIBIT 10.5
CRAY RESEARCH, INC.
ANNUAL INCENTIVE PLAN
(AS AMENDED EFFECTIVE JANUARY 1, 1994)
The purpose of the Annual Incentive Plan is to recognize and reward key
employees of Cray Research, Inc. and its subsidiaries (the "Company") for
significant contributions to the Company's annual business performance.
Incentive awards are based on performance results compared to annually
established plan goals. The Plan shall be administered by the Compensation and
Development Committee of the Board of Directors.
OBJECTIVES
- - Promote strong linkages between employee contributions and overall business
unit and Company performance that enhances shareholder value.
- - Reward performance that directly supports the achievement of the business
units' and the Company's annual business objectives.
- - Reward and recognize innovation and creativity in accomplishing business
objectives.
- - Attract and retain the critical technical and management talent necessary for
the Company's success.
- - Provide the opportunity for significant compensation based on individual and
Company annual performance without increasing compensation fixed costs.
ELIGIBILITY
Eligibility for Plan participation will be based on position level in the
Company immediately following the January salary cycle each year. Some employees
will automatically participate in the Plan, and others will require nomination
for participation by the appropriate Vice President. The Compensation and
Development Committee shall approve elected officer participation and awards and
general levels of participation throughout the Company. Employees promoted or
hired into eligible positions after the beginning of the Plan year may be
nominated during the year. Executive management will review all nominations
prior to approval by the Chief Executive Officer. Participants will be notified
of their eligibility for the year following the first meeting of the Committee
for the year.
Generally, non-management employees whose compensation includes an
opportunity for sales commissions will be excluded from participation in the
Plan. In addition, movement out of an eligible salary grade during the Plan year
will result in removal from the Plan.
PERFORMANCE TARGETS
Company measurements will be determined and performance levels established
for the year by the Compensation and Development Committee at the first meeting
of each calendar year, upon recommendation by the Chief Executive Officer.
Measurements for each participating business unit will be established annually.
Concurrently, minimum and maximum levels of performance will be determined for
each measure for use in calculating awards under the Plan.
PERFORMANCE RESULTS
The Chief Executive Officer will recommend to the Compensation and
Development Committee for approval the performance on the past year's Company
performance targets at the first meeting of each calendar year. Business unit
performance on the past year's business unit performance targets will be
determined by the Chief Executive Officer in January.
DETERMINATION AND PAYMENT OF AWARDS
All participants will have their awards determined by Company and business
unit performance.
Certain lower level participants will have a component of their awards based
on performance on individual objectives. Performance objectives for these
participants should be based on the performance of specific job
responsibilities, as well as Company and business unit objectives. At the
beginning of the Plan year, these lower level participants, with the approval of
their managers, will specify
<PAGE>
measurable objectives to be used for this purpose. Each participant and his/her
manager should work throughout the year to make sure the objectives are current
and reflective of changing business conditions. At the end of the Plan year,
each participant's managers will assess performance on objectives and recommend
an individual award percentage with respect to such objectives to the
appropriate Vice President. If individual objectives are not met, adjustment in
the individual award percentage down to the minimum level are to be made. If
individual objectives are exceeded, adjustments up to the maximum level are to
be made. The range from minimum to maximum is expected to be utilized by those
making award recommendations. Executive management endorsement is also required
prior to final approval by the Chief Executive Officer.
At the time a participant is notified of eligibility such participant will
also be notified of the manner in which his or her award will be determined, the
range of possible awards, and other appropriate information.
The individual award is expressed as a percentage of eligible wages. For the
purposes of this Plan, eligible wages are defined as currently defined for the
Retirement Savings Plus Plan, excluding commissions and/or quota attainment
payments. The individual award percentage range will be established for each
employee based on his or her level of participation. The minimum award for any
participant is 0%, the maximum award will be the highest award opportunity for
an employee in a given level.
To be eligible to receive an award payment, participants in the Plan must be
an employee of the Company on the last day of the year. In addition, only those
employees who are in an eligible salary grade on the last day of the year are
eligible to receive an award payment. In the event of death or disability, a
prorated award will be made to the participant or the participant's estate based
on the eligible wages of the employee at time of death or disability, Company
and business unit performance for the year, and the individual's target. NO
AWARD PAYMENTS WILL BE MADE TO ANY PARTICIPANTS IN THE PLAN IF PAYMENTS
CALCULATED UNDER THE TERMS OF THE PLAN WOULD RESULT IN A LOSS FOR THE FISCAL
YEAR WITH RESPECT TO WHICH PAYMENTS ARE MADE.
Award payments will be made in cash. Up to 50% of the award may be taken in
common stock of the Company at the participant's election; provided, however,
that awards to officers shall be paid only in cash, and officers may not elect
to take stock. Elections must be made prior to the end of the current calendar
year, with payments anticipated at the end of February, unless otherwise
determined by the Compensation and Development Committee.
Awards paid in stock will be based on the closing market price of the stock
on the first working day of February of the new year, discounted by 15%. In
addition, individual participants who are officers of the Company may defer
(prior to the end of the current calendar year) all or any portion of their
bonus to be paid. Participants will be advised in writing annually of the status
of the deferred account. Awards are not transferable.
NUMBER OF SHARES RESERVED FOR ISSUANCE
A total of 500,000 shares of the Company's common stock, one dollar par
value, has been reserved for issuance to employees participating under the Plan.
As of January 1994, 279,603 shares have been issued to participants.
ADJUSTMENT OF SHARES
In the event of a recapitalization, merger, consolidation, reorganization,
stock dividend, stock split or other change in capitalization affecting the
common stock of the Company, appropriate equitable share and price adjustments
shall be made to awards and the Plan to prevent dilution or enlargement of
rights.
AMENDMENT
The Board of Directors reserves the right to amend or cancel the Plan at any
time.
<PAGE>
EXHIBIT 11
CRAY RESEARCH, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS (LOSS) PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------------
1993 1992 1991
------------ ----------- --------
<S> <C> <C> <C>
PRIMARY EARNINGS (LOSS) PER SHARE
Net earnings (loss)............................... $ 60,855 $(14,875) $113,047
Add -- net earnings effect of interest on 6 1/8%
convertible subordinated debentures...... --(a) --(a) 3,845
------------ ----------- --------
Net earnings (loss) applicable to common and
common equivalent shares......................... 60,855 $(14,875) $116,892
------------ ----------- --------
------------ ----------- --------
Weighted average number of common shares
outstanding during the period.................... 26,117 26,472 26,293
Add -- common stock equivalents -- outstanding
stock options............................ 1 21 521
-- common stock equivalents -- convertible
debentures................................ --(a) --(a) 1,346
------------ ----------- --------
Weighted average number of common and common
equivalent shares outstanding, as adjusted....... 26,118 26,493 28,160
------------ ----------- --------
------------ ----------- --------
Earnings (loss) per common and common equivalent
share............................................ $ 2.33 $ (.56) $ 4.15
------------ ----------- --------
------------ ----------- --------
FULLY DILUTED EARNINGS (LOSS) PER SHARE
Net earnings (loss) per primary computation
above............................................ $ 60,855 $(14,875) $116,892
------------ ----------- --------
------------ ----------- --------
Weighted average number of common shares
outstanding, as adjusted per primary computation
above............................................ 26,118 26,493 28,160
Add -- additional dilutive effect of outstanding
options.................................. -- -- 20
------------ ----------- --------
Weighted average number of common and common
equivalent shares outstanding, as adjusted....... 26,118 26,493 28,180
------------ ----------- --------
------------ ----------- --------
Earnings (loss) per common and common equivalent
share assuming full dilution..................... $ 2.33 $ (.56) $ 4.15
------------ ----------- --------
------------ ----------- --------
<FN>
- ------------------------
(a) The effect of convertible debentures on the earnings (loss) per share is
anti-dilutive and therefore is excluded from the calculation.
</TABLE>
<PAGE>
HISTORICAL FINANCIAL SUMMARY
Cray Research, Inc. and Subsidiaries
<TABLE>
<CAPTION>
1993 1992 1991
----------------------------------------
<S> <C> <C> <C>
SUMMARY OF OPERATIONS (In thousands, except per share data)
- ----------------------------------------------------------------------
Revenue $ 894,857 $ 797,578 $ 862,457
Cost of revenue 503,746 484,135 404,221
- ---------------------------------------------------------------------- ----------------------------------------
Gross profit 391,111 313,443 458,236
- ---------------------------------------------------------------------- ----------------------------------------
Operating expenses:
Development and engineering 145,700 161,888 143,232
Marketing, general and administrative 157,616 166,987 152,264
- ---------------------------------------------------------------------- ----------------------------------------
Total operating expenses 303,316 328,875 295,496
- ---------------------------------------------------------------------- ----------------------------------------
Operating income (loss) 87,795 (15,432) 162,740
Other income (expense), net (3,352) (206) 3,881
- ---------------------------------------------------------------------- ----------------------------------------
Earnings (loss) before income taxes 84,443 (15,638) 166,621
Income tax (expense) benefit (23,588) 763 (53,574)
- ---------------------------------------------------------------------- ----------------------------------------
Net earnings (loss) $ 60,855 $ (14,875) $ 113,047
- ---------------------------------------------------------------------- ----------------------------------------
Earnings (loss) per share $ 2.33 $ (0.56) $ 4.15
- ---------------------------------------------------------------------- ----------------------------------------
Average number of common and common equivalent shares outstanding 26,118 26,493 28,160
- ---------------------------------------------------------------------- ----------------------------------------
FINANCIAL POSITION (In thousands)
- ----------------------------------------------------------------------
Current assets $ 627,313 $ 505,181 $ 558,204
Current liabilities 271,963 184,312 206,880
- ---------------------------------------------------------------------- ----------------------------------------
Working capital 355,350 320,869 351,324
Long-term receivables 10,593 12,226 25,863
Leased systems and spares, net 99,859 96,296 109,868
Property, plant and equipment, net 225,649 257,775 249,080
Investments and other assets 206,354 149,786 136,031
- ---------------------------------------------------------------------- ----------------------------------------
Total 897,805 836,952 872,166
Less:
Long-term debt 105,478 106,402 107,426
Other long-term obligations 12,986 7,489 6,068
- ---------------------------------------------------------------------- ----------------------------------------
Stockholders' equity $ 779,341 $ 723,061 $ 758,672
- ---------------------------------------------------------------------- ----------------------------------------
GENERAL DATA AND RATIOS
- ----------------------------------------------------------------------
Current ratio 2.3:1 2.7:1 2.7:1
Return on stockholders' average equity 8.2% (2.0)% 16.8%
Common shares outstanding at year-end (in thousands) 25,980 26,047 26,592
Book value per share $ 30.00 $ 27.76 $ 28.53
Stockholders of record at year-end 5,859 6,137 5,589
Customer installed systems 505 446 309
Number of employees at year-end 4,960 4,895 5,395
Revenue per average number of employees (in thousands) $ 181 $ 146 $ 170
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
1990 1989 1988 1987 1986 1985 1984 1983
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 804,380 $ 784,700 $ 756,306 $ 687,336 $ 596,685 $ 380,158 $ 228,752 $ 169,690
360,340 380,754 292,774 248,895 206,051 134,843 83,044 70,782
------------------------------------------------------------------------------------------------------------------
444,040 403,946 463,532 438,441 390,634 245,315 145,708 98,908
------------------------------------------------------------------------------------------------------------------
130,164 145,045 119,357 110,381 89,150 49,851 37,997 25,982
155,414 141,611 126,219 106,826 84,894 63,105 43,610 29,528
------------------------------------------------------------------------------------------------------------------
285,578 286,656 245,576 217,207 174,044 112,956 81,607 55,510
------------------------------------------------------------------------------------------------------------------
158,462 117,290 217,956 221,234 216,590 132,359 64,101 43,398
9,624 9,977 15,883 11,178 8,625 3,484 2,790 2,664
------------------------------------------------------------------------------------------------------------------
168,086 127,267 233,839 232,412 225,215 135,843 66,891 46,062
(55,092) (38,222) (77,208) (85,336) (100,400) (60,233) (21,539) (19,991)
------------------------------------------------------------------------------------------------------------------
$ 112,994 $ 89,045 $ 156,631 $ 147,076 $ 124,815 $ 75,610 $ 45,352 $ 26,071
------------------------------------------------------------------------------------------------------------------
$ 4.02 $ 3.02 $ 4.99 $ 4.65 $ 3.99 $ 2.49 $ 1.53 $ .88
------------------------------------------------------------------------------------------------------------------
28,957 30,666 32,135 32,420 32,021 30,370 29,679 29,510
------------------------------------------------------------------------------------------------------------------
$ 386,590 $ 473,458 $ 538,438 $ 469,505 $ 324,049 $ 248,950 $ 192,560 $ 177,435
204,166 233,152 199,461 167,560 118,353 111,018 75,682 47,999
------------------------------------------------------------------------------------------------------------------
182,424 240,306 338,977 301,945 205,696 137,932 116,878 129,436
27,219 8,154 8,559 9,907 5,461 5,789 8,156 24,786
104,987 105,635 89,987 65,880 60,476 54,280 49,263 32,655
241,233 205,130 198,370 152,055 137,174 92,589 56,286 41,198
184,346 179,474 156,079 204,913 172,870 41,520 23,831 2,781
------------------------------------------------------------------------------------------------------------------
740,209 738,699 791,972 734,700 581,677 332,110 254,414 230,856
105,450 143,453 107,531 108,603 122,313 9,060 10,158 33,445
5,561 944 7,689 15,483 17,508 18,106 23,804 25,026
------------------------------------------------------------------------------------------------------------------
$ 629,198 $ 594,302 $ 676,752 $ 610,614 $ 441,856 $ 304,944 $ 220,452 $ 172,385
------------------------------------------------------------------------------------------------------------------
1.9:1 2.0:1 2.7:1 2.8:1 2.7:1 2.2:1 2.5:1 3.7:1
18.8% 13.3% 23.9% 27.6% 33.0% 28.2% 23.6% 17.0%
26,163 28,152 29,247 30,761 30,276 29,807 29,348 29,178
$ 24.05 $ 21.11 $ 23.14 $ 19.85 $ 14.59 $ 10.23 $ 7.51 $ 5.91
6,121 6,287 5,966 5,802 5,019 4,647 3,735 3,786
263 240 220 173 138 108 84 59
4,857 4,708 5,237 4,308 3,999 3,180 2,203 1,551
$ 168 $ 150 $ 161 $ 164 $ 162 $ 140 $ 123 $ 118
</TABLE>
21
<PAGE>
FINANCIAL REVIEW
Cray Research, Inc. and Subsidiaries
REVENUE
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
High-end systems sold:
New system installations 37 43 56
Reinstallations 13 10 7
- ---------------------------------------------------- --- --- ---
50 53 63
--- --- ---
High-end systems leased:
New system installations 4 8 12
Reinstallations 6 2 7
- ---------------------------------------------------- --- --- ---
10 10 19
--- --- ---
Total high-end system installations 60 63 82
- ---------------------------------------------------- --- --- ---
--- --- ---
High-end system lease-to-purchase conversions 12 16 6
- ---------------------------------------------------- --- --- ---
--- --- ---
Entry-level systems (1) 41 137 11
- ---------------------------------------------------- --- --- ---
--- --- ---
<FN>
(1) Entry-level systems include systems accepted at end-user sites or by
independent distributors.
</TABLE>
<TABLE>
<CAPTION>
Percent of total revenue Change from prior year
------------------------ ----------------------
1993 1992 1991 1993 1992
---- ---- ---- -------- --------
<C> <C> <C> <S> <C> <C>
Revenue:
75.5% 68.2% 69.9% Sales 24.2 % (9.8)%
2.6 6.8 9.2 Leased systems (56.3) (31.9)
21.9 25.0 20.9 Service fees (2.0) 10.7
----- ----- ----- ---------------------- ---- ----
100.0% 100.0% 100.0% Total revenue 12.2 % (7.5)%
----- ----- ----- ---------------------- ---- ----
----- ----- ----- ---- ----
</TABLE>
Sales revenue increased 24.2% in 1993 after a 9.8% decline in 1992. Twelve of
the Company's largest systems, the CRAY C916 system, were installed in 1993,
compared to six in 1992, the year of introduction. As a result, average revenue
per new high-end system sold increased to $15.8 million in 1993, from $7.3
million in 1992. Sales revenue gains from these systems were offset partially by
approximately $100 million of revenue declines, split equally between entry-
level systems and lease-to-purchase conversions. Both declines were caused by
volume decreases. The reduced entry-level systems volumes resulted from the
transition period during which the Company moved the distribution of these
systems from an independent distributor back to the Company's sales force.
The sales revenue decline in 1992 compared to 1991 was the result of a
reduction in the number of new high-end systems sold, from 56 in 1991 to 43 in
1992. Average selling prices also declined, from $8.4 million to $7.3 million,
due to market pricing pressures from the maturing of the CRAY Y-MP product line
prior to the introduction of the CRAY C90 systems. The high-end systems revenue
decline was offset partially by volume sales of entry-level systems and revenue
from lease-to-purchase conversions.
Leased systems revenue decreased 56.3% in 1993 from 1992, and 31.9% in 1992
compared to 1991. Lease revenues in 1993 and 1992 showed the impact of the large
number of 1992 purchase conversions, and also were affected by a shift in the
lease base toward smaller systems.
Service fees declined 2.0% in 1993 after a 10.7% increase in 1992. The 1993
decrease was the result of foreign currency exchange rate fluctuations. The 1992
increase reflects growth in the installed base and service fees from maintenance
contracts acquired in an acquisition.
Revenue from U.S. customers represented 63%, 57% and 51% of consolidated
revenue during 1993, 1992 and 1991, respectively. Sales in Europe and Japan were
strong in 1991, but declined in 1992 and in 1993, reflecting depressed economies
in those regions.
Revenue from U.S. government agencies increased in 1993 to 43% of consolidated
revenues, compared to 31% in 1992 and 32% in 1991. The high ratio in 1993
reflects the impact of declining international sales and the high number of
large CRAY C916 systems sold to U.S. government agencies in 1993. The increase
is contrary to a continuing trend that began in 1989 as the Company's business
shifts to a higher proportion of
22
<PAGE>
commercial customers and to new markets, especially for small systems.
The Company is planning for increased total revenue in 1994, with substantial
changes in the make-up of sales revenue. Sales are expected to shift to smaller
systems and to the Company's new massively parallel processing (MPP) system, the
CRAY T3D. This mix change, together with continued market pricing pressures, is
expected to result in significantly lower average selling prices. To meet its
revenue goals, the Company must achieve a significant increase in the number of
systems accepted in 1994, many of which will be new customer installations.
GROSS PROFIT
<TABLE>
<CAPTION>
Percent of related revenue Change from prior year
-------------------------- ----------------------
1993 1992 1991 1993 1992
---- ---- ---- ------ ------
<C> <C> <C> <S> <C> <C>
Gross profit percent:
49.1% 45.1% 62.2% Sales 4.0 % (17.1)%
46.1 29.5 46.7 Leased systems 16.6 (17.2)
24.9 26.2 25.6 Service fees (1.3) 0.6
---- ---- ---- ------------------------------ ---- -----
43.7% 39.3% 53.1% Total gross profit percent 4.4 % (13.8)%
---- ---- ---- ------------------------------ ---- -----
---- ---- ---- ---- -----
</TABLE>
The total gross profit margin was 43.7% in 1993, compared to 39.3% in 1992 and
53.1% in 1991. Changes in sales margins have the largest impact on total
margins. Sales margins increased from 45.1% in 1992 to 49.1% in 1993, as a
result of the absence of restructuring charges. During 1992, a fourth quarter
restructuring added $23.9 million to cost of sales and decreased the sales
margin by 4.4%. Margin improvements on CRAY C90 systems in 1993 were offset by
increases in other costs. Sales margins in 1991 were 62.2%, reflecting the lower
production costs of CRAY Y-MP8 systems, and a sales mix that included fewer
small systems.
Lease margins vary widely depending on the mix of systems in the lease base,
but have little impact on overall margins. The marked decline in the 1992 lease
margin was caused by the lease-to-purchase conversion of several high margin
leases.
Service margins declined to 24.9% in 1993, compared to 26.2% in 1992 and 25.6%
in 1991. Service margins on CRAY C90 systems are lower than margins achieved in
prior years on high-end CRAY Y-MP systems. Spares costs are higher, and the
Company is responding to customer requirements for lower priced service options
with less coverage as systems become more reliable.
During 1994, the Company expects some downward pressure on overall gross
profit margins, reflecting a shift to smaller, lower gross margin systems and
continued pressure on service margins.
EXPENSES
<TABLE>
<CAPTION>
Percent of total revenue Change from prior year
------------------------ ----------------------
1993 1992 1991 1993 1992
---- ---- ---- ------ ------
<C> <C> <C> <S> <C> <C>
Operating expenses:
16.3% 20.3% 16.7% Development and engineering (10.0)% 13.0 %
14.8 17.6 14.4 Marketing (5.6) 13.3
2.8 3.3 3.2 General and administrative (5.7) (6.0)
---- ---- ---- ------------------------------ ---- ----
33.9% 41.2% 34.3% Total operating expenses (7.8)% 11.3 %
---- ---- ---- ------------------------------ ---- ----
---- ---- ---- ---- ----
</TABLE>
Total operating expenses declined 7.8% during 1993 as a result of cost control
measures established during the fourth quarter 1992 restructuring. As a
percentage of revenue, 1993 operating expenses are relatively comparable to
1991. Expenses in 1992 were increased by restructuring charges of $10.7 million
in development and engineering and $5.9 million in marketing. Marketing expenses
also have risen in response to expanding product lines and markets, and during
1993, increased grants to university customers due to an increase in sales
activities in that market.
The Company is committed to annually spending at least 15% of revenue on the
development and engineering of products that will provide acceptable returns.
During the past three years, expenditures have been
23
<PAGE>
EXPENSES (CONTINUED)
split about equally between software and hardware. The largest software
development expenses have been for operating systems, compilers and network and
communications systems software. Hardware development and engineering
expenditures in 1993 and 1992 were focused on the same areas: the Triton, the
Company's next generation high-end parallel vector supercomputer; MPP system
development; entry-level system development; and ongoing CRAY C90 development
and engineering. Compared to 1991, expenses have shifted toward Triton, MPP and
entry-level systems, and away from the CRAY C90.
The MPP project received funding through 1993 from the Advanced Research
Projects Agency (ARPA). ARPA funding of $4.2 million in 1993, $4.5 million in
1992 and $4.0 million in 1991 was used to partially offset development expenses.
Net other income (expense) declined from income of $3.9 million in 1991 to
expense of $.2 million in 1992 and $3.4 million in 1993. Foreign currency
exchange losses accounted for most of the increase in expense from 1992 to 1993.
Other income in 1991 includes a $4.0 million gain on the sale of part of the
Company's holdings of Cray Computer Corporation stock.
The effective tax rate for 1993 was 27.9%, compared to 4.9% in 1992 and 32.2%
in 1991. The 1992 tax benefit was low relative to the pretax loss because of
limitations on recognition of carryforwards related to the federal Alternative
Minimum Tax and excess foreign tax credits. The 1993 effective tax rate was
several percentage points below historical levels, reflecting the reinstatement
of the Federal Research and Development tax credit retroactive to July 1992, and
the utilization of tax benefit carryforwards from 1992.
FINANCIAL CONDITION
On December 31, 1993, the Company had cash and equivalents of $78.4 million
and long-term investments of $157.0 million, for total cash and investments of
$235.4 million, compared to $161.5 million a year earlier. Operations provided
significant cash in both years, $172.7 million in 1993 and $186.8 million in
1992. Cash flows in 1992 were enhanced by the collection of large receivables
balances from significant December 1991 sales activity.
Excluding transfers between operating cash and long-term investments, total
uses of cash for investing and financing activities declined from $138.0 million
in 1992 to $97.3 million in 1993. Capital expenditures decreased $44.3 million
in 1993 to $45.7 million. Spending was unusually low in 1993, and is expected to
increase in 1994. Significant emphasis will be placed on upgrading printed
circuit board production and integrated circuit development capabilities to
support new product introductions.
Common stock repurchases also were lower in 1993, dropping to 288,200 shares
for $7.6 million, compared to 925,000 shares for $30.0 million in 1992. The
Company repurchases its common stock subject to available cash flows and market
conditions. At the end of 1993, the Company had authority to repurchase up to
approximately 1.7 million additional shares.
Stockholders' equity increased 7.8% in 1993, primarily from the year's net
earnings. Book value per share increased to $30.00 from $27.76 a year earlier.
Return on stockholders' average equity was 8.2% in 1993 compared to negative
2.0% in 1992.
The Company believes that its future cash requirements can be met with
existing cash and investments and cash generated from operations. The Company
also has a $75 million unused, unsecured line of credit available to meet future
cash requirements. The Company's long-term debt obligations do not require
significant payments until 1997.
24
<PAGE>
REPORT OF MANAGEMENT
The accompanying consolidated financial statements, including the notes
thereto, and other financial information presented in the Annual Report were
prepared by management, which is responsible for their integrity and
objectivity. The financial statements have been prepared in accordance with
generally accepted accounting principles and include amounts that are based upon
our best estimates and judgements.
The Company maintains an effective system of internal accounting control. We
believe this system provides reasonable assurance that transactions are executed
in accordance with management authorization and are appropriately recorded in
order to permit preparation of financial statements in conformity with generally
accepted accounting principles and to adequately safeguard, verify, and maintain
accountability of assets. The concept of reasonable assurance is based on the
recognition that the cost of a system of internal control should not exceed the
benefits derived.
KPMG Peat Marwick, independent certified public accountants, are retained to
audit the Company's financial statements. Their accompanying report is based
on an audit conducted in accordance with generally accepted auditing standards.
The audit includes a review of the internal accounting control structure to
gain a basic understanding of the accounting system in order to design an
effective and efficient audit approach and not for the purpose of providing
assurance on the system of internal control.
The Audit Committee of the Board of Directors is composed of three outside
directors and is responsible for recommending the independent accounting firm to
be retained for the coming year, subject to stockholder approval. The Audit
Committee meets periodically and privately with the independent accountants, as
well as with management, to review accounting, auditing, internal accounting
controls, and financial reporting matters.
John F. Carlson
Chairman and Chief Executive Officer
Michael J. Lindseth
Chief Financial Officer
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders of Cray Research, Inc.:
We have audited the accompanying consolidated balance sheets of Cray Research,
Inc. and subsidiaries as of December 31, 1993 and 1992 and the related
consolidated statements of operations, cash flows and stockholders' equity for
each of the years in the three-year period ended December 31, 1993. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the aforementioned consolidated financial statements present
fairly, in all material respects, the financial position of Cray Research, Inc.
and subsidiaries at December 31, 1993 and 1992 and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1993, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick
Minneapolis, Minnesota
January 25, 1994
25
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
Cray Research, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Years ended December 31
---------------------------------------
1993 1992 1991
--------- --------- ---------
(In thousands, except per share data)
<S> <C> <C> <C>
REVENUE:
Sales $ 675,492 $ 543,735 $ 602,569
Leased systems 23,651 54,066 79,390
Service fees 195,714 199,777 180,498
- ---------------------------------------------------------- --------- --------- ---------
Total revenue 894,857 797,578 862,457
- ---------------------------------------------------------- --------- --------- ---------
COST OF REVENUE:
Cost of sales 344,052 298,588 227,523
Cost of leased systems 12,757 38,096 42,351
Cost of services 146,937 147,451 134,347
- ---------------------------------------------------------- --------- --------- ---------
Total cost of revenue 503,746 484,135 404,221
- ---------------------------------------------------------- --------- --------- ---------
GROSS PROFIT 391,111 313,443 458,236
- ---------------------------------------------------------- --------- --------- ---------
OPERATING EXPENSES:
Development and engineering 145,700 161,888 143,232
Marketing 132,534 140,393 123,965
General and administrative 25,082 26,594 28,299
- ---------------------------------------------------------- --------- --------- ---------
Total operating expenses 303,316 328,875 295,496
- ---------------------------------------------------------- --------- --------- ---------
OPERATING INCOME (LOSS) 87,795 (15,432) 162,740
Other income (expense), net (3,352) (206) 3,881
- ---------------------------------------------------------- --------- --------- ---------
EARNINGS (LOSS) BEFORE INCOME TAXES 84,443 (15,638) 166,621
Income tax (expense) benefit (23,588) 763 (53,574)
- ---------------------------------------------------------- --------- --------- ---------
NET EARNINGS (LOSS) $ 60,855 $ (14,875) $ 113,047
- ---------------------------------------------------------- --------- --------- ---------
--------- --------- ---------
EARNINGS (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE $ 2.33 $(0.56) $ 4.15
- ---------------------------------------------------------- --------- --------- ---------
--------- --------- ---------
AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING 26,118 26,493 28,160
- ---------------------------------------------------------- --------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
26
<PAGE>
CONSOLIDATED BALANCE SHEETS
Cray Research, Inc. and Subsidiaries
<TABLE>
<CAPTION>
December 31
-------------------------
1993 1992
---------- ----------
(In thousands)
<S> <C> <C>
ASSETS
- ----------------------------------------------------------------------
CURRENT ASSETS:
Cash and equivalents $ 78,373 $ 54,953
Receivables 186,852 155,797
Inventories 315,100 263,284
Other current assets 46,988 31,147
- ---------------------------------------------------------------------- ---------- ----------
Total current assets 627,313 505,181
LONG-TERM RECEIVABLES 10,593 12,226
LEASED SYSTEMS AND SPARES, NET 99,859 96,296
PROPERTY, PLANT AND EQUIPMENT, NET 225,649 257,775
INVESTMENTS AND OTHER ASSETS 206,354 149,786
- ---------------------------------------------------------------------- ---------- ----------
$1,169,768 $1,021,264
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ----------------------------------------------------------------------
CURRENT LIABILITIES:
Current installments of long-term debt $ 2,216 $ 5,389
Accounts payable 41,679 30,739
Accrued expenses 109,300 85,121
Income taxes payable 30,422 4,023
Deferred income and customer advances 88,346 59,040
- ---------------------------------------------------------------------- ---------- ----------
Total current liabilities 271,963 184,312
- ---------------------------------------------------------------------- ---------- ----------
LONG-TERM DEBT, EXCLUDING CURRENT INSTALLMENTS 105,478 106,402
OTHER LONG-TERM OBLIGATIONS 12,986 7,489
STOCKHOLDERS' EQUITY:
Common stock of $1 par value; authorized 100,000,000 shares;
issued 31,511,000 shares 31,511 31,511
Additional paid-in capital 102,489 109,322
Retained earnings 866,864 806,009
Foreign currency translation adjustments (3,024) (429)
Treasury stock, at cost; 5,531,000 and 5,464,000 shares (218,499) (223,352)
- ---------------------------------------------------------------------- ---------- ----------
Total stockholders' equity 779,341 723,061
- ---------------------------------------------------------------------- ---------- ----------
$1,169,768 $1,021,264
---------- ----------
---------- ----------
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
27
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cray Research, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Years ended December 31
----------------------------------------
1993 1992 1991
---------- ---------- ----------
(In thousands)
<S> <C> <C> <C>
CASH FLOWS PROVIDED BY (USED IN) OPERATIONS:
Receipts from customers $ 885,111 $ 904,266 $ 765,836
Payments to suppliers and employees (698,006) (690,693) (650,858)
Income taxes paid (14,830) (27,686) (53,812)
Interest received 9,046 11,104 12,879
Interest paid (9,171) (9,336) (7,800)
Other, net 598 (839) (544)
- ---------------------------------------------------------------------- ---------- ---------- ----------
Total cash flows provided by operations 172,748 186,816 65,701
- ---------------------------------------------------------------------- ---------- ---------- ----------
CASH FLOWS PROVIDED BY (USED IN) INVESTING:
Expenditures for property, plant and equipment (45,691) (90,035) (73,341)
Expenditures for leased systems and spares (46,991) (37,227) (57,854)
Transfers from (to) long-term investments (50,000) (30,000) 60,000
Other, net 2,120 9,870 (3,251)
- ---------------------------------------------------------------------- ---------- ---------- ----------
Total cash flows used in investing (140,562) (147,392) (74,446)
- ---------------------------------------------------------------------- ---------- ---------- ----------
CASH FLOWS PROVIDED BY (USED IN) FINANCING:
Proceeds from borrowings 5,554 13,250 10,469
Proceeds from purchases of common stock by employees 5,564 11,225 12,971
Repayments of debt (10,208) (15,014) (40,889)
Repurchases of common stock (7,633) (30,041) --
- ---------------------------------------------------------------------- ---------- ---------- ----------
Total cash flows used in financing (6,723) (20,580) (17,449)
- ---------------------------------------------------------------------- ---------- ---------- ----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (2,043) (854) (3,508)
- ---------------------------------------------------------------------- ---------- ---------- ----------
INCREASE (DECREASE) IN CASH AND EQUIVALENTS 23,420 17,990 (29,702)
CASH AND EQUIVALENTS AT BEGINNING OF YEAR 54,953 36,963 66,665
- ---------------------------------------------------------------------- ---------- ---------- ----------
CASH AND EQUIVALENTS AT END OF YEAR $ 78,373 $ 54,953 $ 36,963
- ---------------------------------------------------------------------- ---------- ---------- ----------
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
28
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Cray Research, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Foreign
Common Stock Additional currency Treasury stock
-------------------- paid-in Retained translation --------------------
Shares Amount capital earnings adjustments Shares Amount
-------- -------- ---------- ---------- ------------- -------- ----------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1990 31,511 $31,511 $131,819 $707,837 $5,988 5,348 $(241,619)
Stock plans -- -- (12,645) -- -- (429) 25,616
Income tax benefit from stock plans -- -- 961 -- -- -- --
Translation adjustments -- -- -- -- (3,843) -- --
Net earnings -- -- -- 113,047 -- -- --
- ---------------------------------------- ------ ------- -------- -------- ------- ----- ---------
BALANCE AT DECEMBER 31, 1991 31,511 31,511 120,135 820,884 2,145 4,919 (216,003)
Stock plans -- -- (11,467) -- -- (380) 22,692
Income tax benefit from stock plans -- -- 654 -- -- -- --
Translation adjustments -- -- -- -- (2,574) -- --
Repurchases of common stock -- -- -- -- -- 925 (30,041)
Net loss -- -- -- (14,875) -- -- --
- ---------------------------------------- ------ ------- -------- -------- ------- ----- ---------
BALANCE AT DECEMBER 31, 1992 31,511 31,511 109,322 806,009 (429) 5,464 (223,352)
Stock plans -- -- (6,922) -- -- (221) 12,486
Income tax benefit from stock plans -- -- 89 -- -- -- --
Translation adjustments -- -- -- -- (2,595) -- --
Repurchases of common stock -- -- -- -- -- 288 (7,633)
Net earnings -- -- -- 60,855 -- -- --
- ---------------------------------------- ------ ------- -------- -------- ------- ----- ---------
BALANCE AT DECEMBER 31, 1993 31,511 $31,511 $102,489 $866,864 $(3,024) 5,531 $(218,499)
- ---------------------------------------- ------ ------- -------- -------- ------- ----- ---------
------ ------- -------- -------- ------- ----- ---------
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
29
<PAGE>
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cray Research, Inc. and Subsidiaries
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of Cray
Research, Inc and its wholly-owned subsidiaries (the Company). All material
intercompany accounts and transactions have been eliminated. The accounts of
foreign subsidiaries are consolidated as of November 30 to facilitate timely
reporting.
REVENUE RECOGNITION
Revenue from system sales is recognized at the time the system is accepted by
the customer or independent distributor, or in the case of a conversion from
lease to purchase, at the time of the customer's election to convert.
Revenue from systems under operating lease contracts is recorded as earned over
the lease term. Service fees are recognized monthly as earned.
Trade-in allowances may be granted when a used system is traded-in on the
purchase or lease of a new system. These allowances are recorded as a reduction
of revenue on the new system.
FORWARD EXCHANGE CONTRACTS
Forward exchange contracts are purchased to hedge specific foreign currency
commitments, the majority of which are related to foreign sale and lease
contracts. Realized and unrealized gains and losses on these exchange contracts
are deferred and recognized as part of the related sale or lease transaction.
DEVELOPMENT AND ENGINEERING
Development and engineering costs relate to hardware and software development
and enhancements to existing products. All such costs are expensed as incurred.
Software development costs incurred after the technological feasibility of a
software product has been established are not material. Funds earned by the
Company under research and development arrangements whereby the Company retains
the rights to any technologies developed are recorded as a reduction of the
development costs incurred.
UNIVERSITY RESEARCH AND DEVELOPMENT GRANTS
The Company sponsors software research and development projects at universities
under separate research and development grant agreements. These agreements
generally provide for funding of the projects in fixed amounts over periods of
one to five years.
In exchange for the funding, the Company receives nonexclusive rights to any
software developed. The entire cost of grants with terms in excess of one year
is accrued and charged to expense in the year in which the agreement becomes
effective.
INCOME TAXES
Effective January 1, 1993, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes." Under SFAS No. 109,
deferred tax assets and liabilities are recognized based upon temporary
differences between the financial statement amounts and tax bases of assets and
liabilities using enacted tax rates. The Company previously accounted for income
taxes under SFAS No. 96. The cumulative effect of the change in the method of
accounting forincome taxes did not have a material effect on 1993 consolidated
results of operations and is included in 1993 income tax expense.
In connection with the exercise of nonstatutory stock options and disqualifying
dispositions of common stock acquired by employees under the incentive stock
option plans, the amounts deductible in determining Federal income taxes exceed
amounts charged to income. Any reduction in Federal income taxes payable as a
result of these differences is credited to additional paid-in capital.
EARNINGS (LOSS) PER SHARE
Earnings (loss) per common and common equivalent share is computed by dividing
net earnings (loss), adjusted for the dilutive effect of eliminating convertible
debenture interest expense, by the weighted average number of shares outstanding
and equivalent shares (excluding treasury shares). Equivalent shares result from
dilutive stock options and, if dilutive, the assumed conversion of convertible
debentures.
30
<PAGE>
CASH AND INVESTMENTS
Cash and equivalents consist of cash and highly liquid investments with low
interest rate risk. Long-term investments consist of investments which the
Company intends to hold beyond one year.
Equity securities are carried at the lower of cost or market. All other
investments are stated at cost, which approximates market.
SFAS No. 115, "Accounting for Certain Debt and Equity Securities," was issued in
May 1993. Under SFAS No. 115, the carrying values of certain securities are
required to be adjusted to fair market values and the resulting unrealized gain
or loss included in earnings. The Company expects to implement this standard in
1994. Implementation is not expected to have a material effect on consolidated
results of operations or financial condition.
INVENTORIES
Inventories are stated at the lower of cost (determined principally on a first-
in, first-out basis) or market.
LEASED SYSTEMS AND SPARES
Leased systems and spares for maintenance are capitalized and carried at cost
less accumulated depreciation and amortization. Leased systems are depreciated
using the sum-of-years-digits method over an estimated useful life of three to
four years. Spares are amortized to cost of services using the straight-line
method over an estimated useful life of three to four years. Depreciation
commences upon system acceptance.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are carried at cost less accumulated depreciation
and amortization. Plant and equipment are depreciated using the straight-line
method over their estimated useful lives or, in the case of leasehold
improvements, over the periods of the related leases, if shorter.
PRODUCT TECHNOLOGY
Other assets include product technology, which represents the excess of the cost
of a purchased business over the fair value of the net assets acquired. Product
technology is amortized using the straight-line method over seven years.
POSTEMPLOYMENT BENEFITS
The Company accrues the cost of postretirement benefits other than pensions in
accordance with the provisions of SFAS No. 106. The Company implemented this
Statement in 1993. Implementation did not have a material impact on consolidated
results of operations.
TRANSLATION OF FOREIGN CURRENCIES
The financial statements of foreign subsidiaries are translated to U.S. dollars
in accordance with the provisions of SFAS No. 52. Under this Statement, all
assets and liabilities are translated using period-end exchange rates and
earnings statement items are translated using average exchange rates for the
period. The resulting translation adjustments are made directly to a separate
component of stockholders' equity.
RECLASSIFICATIONS
Deferred profit sharing expense has been reclassified in the 1992 and 1991
consolidated statements of operations from general and administrative expense to
the line items in which the related wages are reported to conform to the 1993
presentation. The reclassifications had no effect on previously reported
operating income or loss or net earnings or loss.
31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cray Research, Inc. and Subsidiaries
BUSINESS AND GEOGRAPHIC SEGMENT DATA
The Company is engaged in the design, development, and manufacture of high-
speed computing systems and related software intended for scientific and
commercial applications, and the marketing and support of such systems and
software.
The Company's manufacturing and development operations are located in the
United States.
The Company has wholly-owned foreign subsidiaries and branches engaged
primarily in providing marketing and maintenance services in Western Europe,
Asia Pacific, the Mideast, Canada and Mexico.
Comparative operating and segment data for the Company's domestic and foreign
operations follows:
<TABLE>
<CAPTION>
Revenue
------------------------------------ Operating Identifiable
Total Intercompany Consolidated profits assets
-------- ------------ ------------ --------- ------------
(In thousands)
<S> <C> <C> <C> <C> <C>
UNITED STATES:
1993 $564,421 $ (494) $563,927 $229,003 $1,049,159
1992 451,817 (1,053) 450,764 155,542 915,106
1991 444,830 (1,590) 443,240 218,222 977,447
WESTERN EUROPE:
1993 $255,367 $(30,163) $225,204 $ 75,673 $ 79,382
1992 241,484 (46,687) 194,797 60,218 80,075
1991 297,069 (43,729) 253,340 110,160 67,600
ASIA PACIFIC:
1993 $101,649 $(12,449) $ 89,200 $ 24,817 $ 32,828
1992 140,681 (14,722) 125,959 54,653 18,510
1991 117,932 (10,475) 107,457 51,077 23,003
OTHER FOREIGN:
1993 $ 18,631 $ (2,105) $ 16,526 $ 4,610 $ 8,399
1992 27,792 (1,734) 26,058 11,025 7,573
1991 60,291 (1,871) 58,420 33,575 10,996
CONSOLIDATED:
1993 $940,068 $(45,211) $894,857 $334,103 $1,169,768
1992 861,774 (64,196) 797,578 281,438 1,021,264
1991 920,122 (57,665) 862,457 413,034 1,079,046
- --------------------------------------------------------------------------------
</TABLE>
RECONCILIATION TO CONSOLIDATED STATEMENTS OF OPERATIONS:
<TABLE>
<CAPTION>
1993 1992 1991
--------- --------- --------
<S> <C> <C> <C>
Consolidated operating profits $ 334,103 $ 281,438 $413,034
General corporate expenses (246,308) (296,870) (250,294)
Other income (expense), net (3,352) (206) 3,881
- ---------------------------------------- --------- --------- --------
Consolidated earnings (loss)
before income taxes $ 84,443 $ (15,638) $166,621
- ---------------------------------------- --------- --------- --------
--------- --------- --------
</TABLE>
Revenue, operating profit, and the related identifiable assets are included in
the geographic area in which the customer is located. International revenue
includes export sales and leases from the United States of approximately
$227,749,000 in 1993, $237,017,000
in 1992 and $320,963,000 in 1991.
Revenue from U.S. Government agencies totalled approximately $386,056,000 in
1993, $248,832,000 in 1992 and $278,772,000 in 1991.
Net assets of foreign subsidiaries included in the consolidated balance sheets
are $42,402,000 in 1993 and $45,067,000 in 1992.
32
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET DETAILS
1993 1992
--------- ---------
(In thousands)
<S> <C> <C>
CASH AND INVESTMENTS:
Cash and commercial paper $ 81,428 $ 96,562
Certificates of deposit 7,540 18,554
Auction rate government securities 91,900 20,000
Government revenue bonds 18,653 5,900
Money market funds 21,921 8,737
Other 13,953 11,707
- -------------------------------------------------- --------- ---------
Total cash and investments 235,395 161,460
Less long-term investments (157,022) (106,507)
- -------------------------------------------------- --------- ---------
Cash and equivalents $ 78,373 $ 54,953
- -------------------------------------------------- --------- ---------
--------- ---------
RECEIVABLES:
Trade $ 157,669 $ 134,003
Current portion of long-term receivables 11,184 9,569
Other 17,999 12,225
- -------------------------------------------------- --------- ---------
$ 186,852 $ 155,797
--------- ---------
--------- ---------
INVENTORIES:
Components and subassemblies $ 89,421 $ 97,696
Systems in process 148,772 119,094
Finished goods 76,907 46,494
- -------------------------------------------------- --------- ---------
$ 315,100 $ 263,284
--------- ---------
--------- ---------
LEASED SYSTEMS AND SPARES:
Leased systems and spares $ 288,706 $ 290,987
Less accumulated depreciation and amortization (188,847) (194,691)
- -------------------------------------------------- --------- ---------
$ 99,859 $ 96,296
--------- ---------
--------- ---------
PROPERTY, PLANT AND EQUIPMENT:
Land and improvements $ 22,822 $ 22,330
Buildings and improvements 158,364 110,505
Machinery and equipment 125,975 160,712
Data processing equipment 165,620 169,706
Office furniture and equipment 19,861 21,147
Construction in progress 5,369 12,446
- -------------------------------------------------- --------- ---------
498,011 496,846
Less accumulated depreciation and amortization (272,362) (239,071)
- -------------------------------------------------- --------- ---------
$ 225,649 $ 257,775
--------- ---------
--------- ---------
ACCRUED EXPENSES:
Employee compensation $ 59,389 $ 39,553
Accrued warranty costs 16,156 14,080
Other 33,755 31,488
- -------------------------------------------------- --------- ---------
$ 109,300 $ 85,121
--------- ---------
--------- ---------
</TABLE>
33
<PAGE>
LONG-TERM DEBT
<TABLE>
<CAPTION>
1993 1992
--------- ---------
(In thousands)
<S> <C> <C>
Convertible Subordinated Debentures, 6 1/8% $ 105,000 $ 105,000
Other 2,694 6,791
- -------------------------------------------------- --------- ---------
Total long-term debt 107,694 111,791
Less current installments (2,216) (5,389)
- -------------------------------------------------- --------- ---------
Long-term debt, excluding current installments $ 105,478 $ 106,402
-------------------------------------------------- --------- ---------
--------- ---------
</TABLE>
The subordinated debentures are convertible into the Company's common stock at
a conversion price of $78 per share at any time prior to maturity. If no
conversion occurs, the Company is required to make annual sinking fund payments
of $5,750,000 from 1997 to 2010 and a final maturity payment of $24,500,000 in
2011. The debentures may be redeemed at the Company's option at a price of
101.23% after January 31, 1994, decreasing to 100% after January 31, 1996.
The Company has an unused, unsecured $75,000,000 revolving credit agreement.
The agreement has an initial term of three years expiring on April 30, 1995, and
may be renewed annually thereafter. Interest is based on various short-term
floating rates. The agreement contains a number of restrictive covenants with
which the Company was in compliance at December 31, 1993.
In addition, the Company's foreign subsidiaries had approximately $20,054,000
of unused lines of credit at December 31, 1993.
Annual installments of long-term debt as of December 31, 1993, are as follows:
<TABLE>
<CAPTION>
Long-term debt
installments
--------------
Years ending December 31: (In thousands)
<S> <C>
1994 $ 2,216
1995 478
1996 --
1997 5,750
1998 5,750
Thereafter 93,500
---------
$ 107,694
---------
---------
</TABLE>
FINANCIAL INSTRUMENTS
The Company is a party to forward exchange contracts denominated in various
foreign currencies. These contracts totalled $144,468,000 and $114,429,000 at
December 31, 1993 and 1992, respectively. The market value of these contracts as
of December 31, 1993, determined by obtaining quotes from financial
institutions, was $140,439,000. The Company is subject to the risk that parties
to the underlying hedged contracts fail to perform their obligations to the
Company when they become due.
The Company's 6 1/8% Convertible Subordinated Debentures are traded on the New
York Stock Exchange. The market value of these debentures at December 31, 1993
was $90,169,000. The carrying values at December 31, 1993 of all other financial
instruments of the Company approximate their market values.
Current and long-term receivables include amounts due from U.S. Government
agencies of $23,230,000 and $48,259,000 at December 31, 1993 and 1992,
respectively. It is the Company's policy to collateralize sales receivables by
obtaining a security interest in the equipment sold.
34
<PAGE>
STOCK PLANS
At December 31, 1993, 5,791,000 shares of common stock were reserved for
issuance pursuant to stock plans.
STOCK OPTION PLANS
The Company has a stock option plan which provides that incentive stock
options or nonstatutory stock options to purchase an aggregate of 5,579,000
shares of common stock may be granted to selected technical and management
employees. The plan also provides for a limited number of shares to be issued to
employees as stock grants. The number of shares authorized for issuance is
increased each year by three percent of the total outstanding shares of the
Company as of the end of the previous year. The Company also has a stock option
plan which provides for grants to non-employee directors of the Company of
nonstatutory stock options to purchase up to an aggregate of 200,000 shares of
common stock.
Under the plans, the option price is equal to the fair market value on the
date of grant. Generally, options may be exercised at a rate of 25 percent
annually, beginning one year from the date of grant, and terminate seven to ten
years from the date of grant.
Stock option plan activity is summarized as follows:
<TABLE>
<CAPTION>
Option price Available
per share Outstanding Exercisable for grant
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
At December 31, 1991 $30.88-60.68 3,680,535 1,315,325 1,285,665
Authorized for issuance -- -- -- 898,000
Options granted 25.75-47.00 96,580 -- (96,580)
Stock grants -- -- -- (9,836)
Became exercisable 30.88-46.38 -- 903,545 --
Exercised 30.88-43.00 (159,224) (159,224) --
Canceled 30.88-60.68 (552,189) (408,539) 552,189
- ------------------------- ------------ --------- --------- ----------
At December 31, 1992 25.75-47.63 3,065,702 1,651,107 2,629,438
Authorized for issuance -- -- -- 781,000
Options granted 22.00-30.00 1,244,481 -- (1,244,481)
Stock grants -- -- -- (12,100)
Became exercisable 25.75-47.00 -- 703,845 --
Exercised -- -- -- --
Canceled 32.63-47.00 (452,903) (325,402) 452,903
Plan expiration -- -- -- (940,471)
- ------------------------- ------------ --------- --------- ----------
At December 31, 1993 $22.00-47.63 3,857,280 2,029,550 1,666,289
- ------------------------- ------------ --------- --------- ----------
------------ --------- --------- ----------
</TABLE>
During 1991, options for 297,183 shares were exercised at prices ranging from
$30.88 to $43.00 per share.
35
<PAGE>
EMPLOYEE STOCK PURCHASE PLAN
The Company has a Qualified Stock Purchase Investment Plan under which a
maximum of 2,200,000 shares of common stock are available for sale to employees.
Under this plan, eligible employees may designate from 2 to 15 percent of their
compensation to be withheld through payroll deductions for the purchase of
common stock at 85% of the lower of the market price on the first or the last
day of the offering period. Participant elections resulted in the issuance of
186,485 shares at a per share price of $24.86 in 1993, 188,339 shares at a per
share price of $27.41 in 1992, and 107,114 shares at a per share price of $29.96
in 1991.
ANNUAL INCENTIVE AWARD PLAN
The Company has an Annual Incentive Award Plan providing for performance
incentive awards to key employees based on the achievement of individual and
stated company financial and technical objectives. Awards are payable at year-
end in cash or, at the employee's election, up to 50% may be received in common
stock of the Company (up to an aggregate maximum of 500,000 newly issued or
repurchased shares) at 85% of its fair market value. Plan awards totalled
$18,258,000 in 1993, $4,353,000 in 1992 and $8,559,000 in 1991.
Participant elections resulted in the issuance of 82,653 shares of common
stock at a per share price of $26.35 in February 1994, 22,969 shares of common
stock at a per share price of $22.53 in February 1993 and 39,675 shares of
common stock at a per share price of $35.38 in February 1992. Cash awards
totalled $15,876,000, $3,824,000 and $7,011,000 for 1993, 1992 and 1991,
respectively.
PROFIT SHARING PROGRAM
The Company's profit sharing program consists of a distributed cash bonus and,
for domestic employees, contributions to a defined contribution Retirement
Savings Plus Plan that meets the qualifications of Section 401(k) of the
Internal Revenue Code. All employees of the Company with at least six months of
service are eligible to participate in the program.
The Retirement Savings Plus Plan allows eligible domestic employees to
contribute up to 15 percent of their base compensation to an investment savings
account. The Company's contributions to the plan consist of a matching
contribution of 50 cents per dollar contributed by the employee up to a maximum
of $1,000 per employee, and an annual deferred profit sharing contribution equal
to 4% of an employee's eligible wages. The Company's deferred profit sharing
contribution is limited to the maximum amount allowable for income tax purposes.
The Company's contributions to the Retirement Savings Plus Plan were $9,714,000
in 1993, $10,627,000 in 1992 and $8,864,000 in 1991. Employees of the Company's
foreign subsidiaries participate in other retirement plans.
Prior to 1993, the distributed cash bonus was determined by subtracting the
Company's contribution to the Retirement Savings Plus Plan from a percentage of
pretax, pre-profit sharing earnings. The total profit sharing percent,
determined at the discretion of the Board of Directors, was 10.0 percent for
1991. As a result of the Company's net loss in 1992, there was no distributed
cash bonus for that year.
On January 29, 1993, the Company's Board of Directors approved a new Incentive
Cash Profit Sharing Plan to replace the distributed cash bonus under the
Company's previous profit sharing program. Payments under the new plan are based
on achieving operating income targets. The payment for 1993 totalled $4,031,000
36
<PAGE>
INCOME TAXES
Components of income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
Federal State Foreign Total
---------- -------- ---------- --------
(In thousands)
<S> <C> <C> <C> <C>
1993
Current $ 22,491 $ 4,837 $ 16,926 $ 44,254
Deferred (15,705) (3,191) (1,770) (20,666)
- ------------------------------ --------- ------- -------- --------
Provision for income taxes $ 6,786 $ 1,646 $ 15,156 $ 23,588
- ------------------------------ --------- ------- -------- --------
--------- ------- -------- --------
1992
Current $ (22,163) $ 72 $ 22,530 $ 439
Deferred (1,534) (37) 369 (1,202)
- ------------------------------ --------- ------- -------- --------
Provision for income taxes $ (23,697) $ 35 $ 22,899 $ (763)
- ------------------------------ --------- ------- -------- --------
--------- ------- -------- --------
1991
Current $ 34,075 $ 5,991 $ 20,425 $ 60,491
Deferred (7,850) 3 930 (6,917)
- ------------------------------ --------- ------- -------- --------
Provision for income taxes $ 26,225 $ 5,994 $ 21,355 $ 53,574
- ------------------------------ --------- ------- -------- --------
--------- ------- -------- --------
</TABLE>
The provision for foreign income taxes is based upon foreign pretax earnings of
approximately $34,864,000 in 1993, $44,641,000 in 1992 and $41,408,000 in 1991.
The provision for income taxes differs from the expected tax expense (benefit)
(computed by applying the Federal corporate tax rate to earnings or loss before
income taxes) as follows:
<TABLE>
<CAPTION>
Percentage of pretax
earnings or loss
--------------------
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Expected Federal income tax rate 35.0 % 34.0 % 34.0 %
Increase (reduction) attributed to:
State taxes, net of Federal tax benefit 4.7 1.4 2.4
Impact of foreign subsidiaries subject to
higher tax rates 1.1 (37.7) 3.2
Foreign tax credit (0.8) 11.2 (2.2)
Research and development tax credit (5.8) 15.1 (2.5)
FSC exempt income (2.4) 20.7 (2.8)
Nondeductible amortization of intangible assets 1.7 (5.9) 0.8
Tax exempt interest income (1.4) 1.6 (0.2)
Effect of tax credit limitations (4.4) (35.8) --
Other, net 0.2 0.3 (0.5)
- ------------------------------------------------------- ---- ---- ----
Actual effective income tax rate 27.9 % 4.9 % 32.2 %
- ------------------------------------------------------- ---- ---- ----
---- ---- ----
</TABLE>
37
<PAGE>
INCOME TAXES (CONTINUED)
Components of and changes in the net deferred income tax asset are as follows:
<TABLE>
<CAPTION>
Deferred tax
asset (liability) Deferred
------------------ expense
1993 1992 (benefit)
-------- -------- ---------
(In thousands)
<S> <C> <C> <C>
Inventory valuation $ 46,007 $ 42,204 $ (3,803)
Accrued compensation 10,626 6,376 (4,250)
Accrued cost of sales 5,492 2,063 (3,429)
University research and development grants 8,192 3,364 (4,828)
Depreciation 1,651 (3,835) (5,486)
Other, net 3,621 5,253 1,632
- ---------------------------------------------- -------- -------- --------
Total gross deferred income taxes 75,589 55,425 (20,164)
Valuation allowance (10,984) (11,486) (502)
- ---------------------------------------------- -------- -------- --------
Total net deferred income taxes 64,605 43,939 $(20,666)
--------
--------
Less current portion (39,097) (26,419)
- ---------------------------------------------- -------- --------
Noncurrent deferred income taxes $ 25,508 $ 17,520
- ---------------------------------------------- -------- --------
-------- --------
</TABLE>
A valuation allowance is provided when there is some likelihood that a
portion of the deferred tax asset may not be realized. The valuation
allowance relates to certain temporary differences which reverse in the years
1994 through 2033.
For financial statement purposes, Federal minimum tax credit carryforwards of
approximately $1,820,000 are available to offset future income tax expense. The
minimum tax credit carryforwards have no expiration date. In addition, state
research credit carryforwards of approximately $4,200,000 are available for both
income tax and financial statement purposes. These carryforwards expire on
December 31, 2006 and 2007.
At December 31, 1993, there were approximately $64,155,000 of accumulated
undisturbed earnings of subsidiaries outside the United States that are
considered to be reinvested indefinitely, subject to cash flow requirements.
it is not practcable to estimate the deferred tax liability related to such
undisturbed earnings. If such earnings were remitted to the Company, applicable
U.S. Federal income and foreign withholding taxes would be substantially
offset by available foreign tax credits.
RESEARCH AND DEVELOPMENT ARRANGEMENTS
The Company has entered into an agreement with the Advanced Research Projects
Agency (ARPA) to collaborate on the research and development of technologies for
massively parallel processing (MPP) computer systems.
Under the agreement, ARPA contributed $12,700,000 in funding support over a
three-year period ending in 1993. The Company may elect to retain title to any
technologies developed and ARPA will receive a license to the technologies for
its internal use. The timing of the funding was based on the achievement of
milestones contained in the agreement. Based on these milestones, $4,200,000,
$4,500,000 and $4,000,000 was earned in 1993, 1992 and 1991, respectively, and
recorded as a reduction of development and engineering expense.
38
<PAGE>
OTHER INCOME (EXPENSE), NET
<TABLE>
<CAPTION>
1993 1992 1991
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Interest income $ 9,622 $11,114 $12,523
Interest expense (8,531) (9,336) (7,828)
Other expense, net (4,443) (1,984) (814)
- --------------------------------------------- ------- ------- -------
$(3,352) $ (206) $ 3,881
------- ------- -------
------- ------- -------
</TABLE>
LEASING ARRANGEMENTS AS LESSOR
The Company leases computer equipment to its customers under operating leases
with terms which generally range from one to four years. Contracts with U.S.
Government agencies generally provide for cancellation upon 30 days notice.
The Company retains title to all of its leased computer equipment, and pays
taxes, licenses, and insurance on such equipment.
At December 31, 1993 and 1992, leased equipment aggregated $64,988,000 and
$79,279,000, less accumulated depreciation of $34,128,000 and $47,724,000,
respectively.
The Company also enters into lease transactions which are accounted for as
sales in accordance with statements issued by the FASB.
The net investment in sales-type leases as of December 31, 1993 and 1992 is
summarized as follows:
<TABLE>
<CAPTION>
1993 1992
------- -------
(In thousands)
<S> <C> <C>
Total minimum lease payments receivable $24,300 $25,504
Less unearned interest income (2,523) (3,709)
- -------------------------------------------------------- ------- -------
Net investment in sales-type leases 21,777 21,795
Less current portion included in current receivables (11,184) (9,569)
- -------------------------------------------------------- ------- -------
Long-term receivables, excluding current portion $10,593 $12,226
- -------------------------------------------------------- ------- -------
------- -------
</TABLE>
Aggregate future minimum lease rentals on noncancelable operating leases and
sales-type lease agreements are as follows:
<TABLE>
<CAPTION>
Sales-type Operating
leases leases
---------- ---------
Years ending December 31: (In thousands)
<S> <C> <C>
1994 $12,677 $11,889
1995 7,755 6,670
1996 3,857 2,768
1997 11 355
- -------------------------------------------------------- ------- -------
$24,300 $21,682
------- -------
------- -------
</TABLE>
39
<PAGE>
LEASING ARANGEMENTS AS LESSEE
The Company leases office facilities, sales and service facilities, and
equipment under operating leases. The rental payments under these leases are
charged to expense as incurred. Future minimum lease payments under operating
leases with noncancelable terms of more than one year are as follows:
<TABLE>
<CAPTION>
Operating
leases
--------------
Years ending December 31: (In thousands)
<S> <C>
1994 $12,887
1995 10,214
1996 5,243
1997 3,464
1998 1,987
Thereafter 23,781
- ----------------------------------------------------------------- -------
$57,576
-------
-------
</TABLE>
Total rent expense for all operating leases, including rents under lease
arrangements with terms of one year or less, aggregated $21,409,000 in 1993,
$21,486,000 in 1992 and $17,442,000 in 1991.
Substantially all leases provide that the Company pay taxes, maintenance,
insurance, and certain other operating expenses applicable to the leased
premises.
RESTRUCTURING CHARGES
On October 15, 1992, the Company announced a restructuring program. Key
components of the restructuring were a reduction in the manufacturing build
plan, decreases in inventory on hand, and the elimination of 800 regular and
contract positions. These actions resulted in a one-time charge of $42,833,000
in the fourth quarter of that year. This charge included provisions for the
workforce reduction, inventory write downs and adjustments related to the
declining volume, and facility and equipment write downs to reduce and
consolidate manufacturing and internal data processing. The restructuring charge
is included in the 1992 consolidated statement of operations as follows: cost of
sales--$23,920,000; cost of services--$1,345,000; development and engineering--
$10,726,000; marketing-- $5,912,000; general and administrative -- $930,000.
PRODUCT TECHNOLOGY
As a result of the 1990 acquisition of Supertek Computers, Inc., the Company
recorded an intangible asset, product technology, totalling $26,691,000.
Accumulated amortization of product technology aggregated $15,724,000 and
$9,175,000 at December 31, 1993 and 1992, respectively.
Supertek's net operating losses of $14,900,000 prior to acquisition are
available to the Company, subject to limitations, to offset federal taxable
income through 2005. In 1993, tax benefits realized reduced the
carrying value of product technology by $2,800,000.
LEGAL PROCEEDINGS
There are no legal proceedings pending against or involving the Company which,
in the opinion of management, will have a material adverse effect upon
consolidated results of operations or financial position.
40
<PAGE>
SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1993 1992 1991
-------- -------- --------
RECONCILIATION OF NET EARNINGS (LOSS) TO CASH FLOWS (In thousands)
PROVIDED BY OPERATIONS:
<S> <C> <C> <C>
Net earnings (loss) $ 60,855 $(14,875) $113,047
Items which do not use (provide) operating
cash flow:
Depreciation and amortization 124,350 126,850 119,382
Other 867 6,452 (1,449)
(Increase) decrease in operating assets:
Receivables (29,423) 102,082 (125,650)
Inventories (51,816) (18,760) (59,572)
Other (29,506) 5,560 (14,279)
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses 36,219 2,488 (2,950)
Income taxes payable 26,399 (28,419) 9,636
Deferred income and customer advances 29,306 4,017 27,029
Other 5,497 1,421 507
- ------------------------------------------------- -------- -------- --------
Cash flows provided by operations $172,748 $186,816 $ 65,701
- ------------------------------------------------- -------- -------- --------
-------- -------- --------
NONCASH INVESTING AND FINANCING ACTIVITIES:
Liabilities assumed in acquisition $ -- $ -- $ 1,515
Investment valuation allowance -- -- (6,338)
</TABLE>
QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
First Second Third Fourth Annual
quarter quarter quarter quarter total
-------- -------- -------- -------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
1993
Revenue $202,597 $187,670 $201,975 $302,615 $894,857
Gross profit 91,751 83,574 87,839 127,947 391,111
Net earnings 15,024 6,241 15,264 24,326 60,855
Earnings per common and
common equivalent share .58 .24 .58 .93 2.33
1992
Revenue $165,094 $184,997 $220,164 $227,323 $797,578
Gross profit 83,362 78,355 85,788 65,938 313,443
Net earnings (loss) 3,885 1,253 6,524 (26,537) (14,875)
Earnings (loss) per common and
common equivalent share .14 .05 .25 (1.00) (.56)
</TABLE>
41
<PAGE>
INVESTOR INFORMATION
NOTICE OF ANNUAL MEETING
The annual meeting of stockholders will be held in the Minnesota Historical
Society, 345 Kellogg Boulevard West, St. Paul, Minnesota, beginning at 10:00
a.m. on Tuesday, May 17, 1994. A formal notice of the meeting, together with
proxy statement and proxy, will be mailed on or about March 31, 1994 to
stockholders of record as of March 21, 1994.
STOCKHOLDER INQUIRIES
Communications concerning transfer requirements, change of address, and lost
certificates should be directed to the Transfer Agent.
To meet the general information needs of stockholders and investors, Cray
Research staffs an Investor Relations Department. Inquiries are welcome by
letter or telephone to: Investor Relations Department, Cray Research, Inc.,
1440 Northland Drive, Mendota Heights, MN 55120; telephone (612) 683-7331.
SECURITIES LISTING
The Company's common stock is listed on the New York Stock Exchange (primary
listing) under the trading symbol CYR. The stock is also listed and traded on
other principal exchanges.
The Company's 6 1/8% Convertible Subordinated Debentures due 2011 are also
listed on the New York Stock Exchange under the trading symbol CYR RA.
FORM 10-K
After March 31, 1994, the Company will provide a copy of its most recent
Annual Report on Form 10-K, as filed with the Securities and Exchange
Commission, to any stockholder requesting a copy. Inquiries should be directed
to the Investor Relations Department at the address above.
TRANSFER AGENT AND REGISTRAR
Norwest Bank Minnesota, N.A.
161 North Concord Exchange
P.O. Box 738
South St.Paul, Minnesota 55075
CHEMICAL BANK
450 West 33rd Street
New York, New York 10001
COMMON STOCK PRICES
The following table sets forth, for the periods indicated, high and low prices
for the Company's common stock on the New York Stock Exchange.
<TABLE>
<CAPTION>
1993 1992
---------------- ----------------
High Low High Low
------ ------ ------ ------
<S> <C> <C> <C> <C>
First Quarter $29.13 $22.75 $49.50 $40.50
Second Quarter 30.00 25.63 42.13 27.38
Third Quarter 28.00 20.63 29.88 22.75
Fourth Quarter 27.63 23.50 25.50 19.00
</TABLE>
As of February 28, 1994, there were approximately 5,741 record holders of the
Company's common stock.
STOCK PRICE RANGES BY QUARTER
[Graph]
DIVIDENDS
The Company has never declared a cash dividend. The payment of future
dividends will be at the discretion of the Board of Directors and will depend,
among other things, on the Company's earnings, capital requirements, and
financial condition. At present, the Company expects to retain all of its
earnings for use in the business and has no present plans to pay a cash
dividend.
44
<PAGE>
EXHIBIT 22
CRAY RESEARCH, INC. AND SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT
The following are the Company's significant subsidiaries as of December 31,
1993. All are majority owned and are included in the Company's consolidated
financial statements.
<TABLE>
<CAPTION>
STATE OR
NAME JURISDICTION
- ---------------------------------------------------------------------------------- ------------------
<S> <C>
DOMESTIC:
Cray Asia/Pacific, Inc. .......................................................... Delaware
Cray Financial Corporation........................................................ Delaware
Cray Research (India) Ltd. ....................................................... Delaware
Cray Research International, Inc. ................................................ Delaware
Cray Research (America Latina) Ltd. .............................................. Delaware
Cray Research SuperServers, Inc. ................................................. Delaware
INTERNATIONAL:
Cray Research A.B. ............................................................... Sweden
Cray Research Scandinavia A/S..................................................... Norway
Cray Research (Australia) Pty. Ltd. .............................................. Australia
Cray Research B.V. ............................................................... The Netherlands
Cray Research (Canada) Inc. ...................................................... Canada
Cray Research Europe Ltd. ........................................................ United Kingdom
Cray Research France S.A. ........................................................ France
Cray Research GmbH................................................................ Germany
Cray Research Japan, Ltd. ........................................................ Japan
Cray Research (Korea) Ltd. ....................................................... Korea
Cray Research (Malaysia) Sdn. Bhd................................................. Malaysia
Cray Research de Mexico, S.A. de C.V. ............................................ Mexico
Cray Research OY.................................................................. Finland
Cray Research, S.A.E. ............................................................ Spain
Cray Research S.P.R.L. ........................................................... Belgium
Cray Research S.R.L. ............................................................. Italy
Cray Research (Suisse) S.A. ...................................................... Switzerland
Cray Research (UK) Ltd. .......................................................... United Kingdom
</TABLE>
<PAGE>
EXHIBIT 24
CRAY RESEARCH, INC. AND SUBSIDIARIES
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Cray Research, Inc.:
We consent to incorporation by reference in the Registration Statements on
Form S-8 (File numbers 2-99254; 33-42914; 33-8633; 33-32602; 33-49396; 33-49398;
33-25858; 33-33374; 33-33375; 33-62410 and 33-62414) of Cray Research, Inc. of
our reports dated January 25, 1994, relating to the consolidated balance sheets
of Cray Research, Inc. and subsidiaries as of December 31, 1993 and 1992 and the
related consolidated statements of operations, cash flows and stockholders'
equity and the related financial statement schedules for each of the years in
the three-year period ended December 31, 1993, which reports are included or
incorporated by reference in the December 31, 1993 Annual Report on Form 10-K of
Cray Research, Inc.
KPMG Peat Marwick
Minneapolis, Minnesota
March 21, 1994
