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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, 1994
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)
Delaware 39-1161138
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
655A Lone Oak Drive
Eagan, Minnesota 55121 (612) 452-6650
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (REGISTRANT'S TELEPHONE NUMBER)
------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS: NAME OF EACH EXCHANGE ON WHICH REGISTERED:
Common Stock, $1.00 par value...... New York Stock Exchange,
Boston Stock Exchange, Chicago 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
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, 1995, 25,381,000 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 $425,971,000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's 1994 Annual Report to Stockholders for the year
ended December 31, 1994 are incorporated by reference into Parts I and II.
Portions of the Registrant's definitive Proxy Statement for the 1995 Annual
Meeting of Stockholders to be held on May 16, 1995 are incorporated by reference
into Part III.
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<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) 452-6650).
The Company's mission is to provide 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 primarily 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.
With the introduction of the CRAY Superserver 6400 series, the Company
entered the commercial market with customers in financial services,
telecommunication, transportation and manufacturing industries.
The Company's services include product maintenance, consulting and technical
support and providing high performance computing capability through the
Company's wholly-owned subsidiary, Minnesota Supercomputer Center, Inc.
SEGMENT DATA
The Company currently operates in the high-performance segment of the
computer industry.
PRODUCTS AND SERVICES
The Company's products consist primarily of the CRAY C90 series and its
follow-on, the CRAY T90 series of high-end parallel vector processor (PVP)
supercomputer systems; the CRAY EL series and the follow-on J90 series of
lower-priced PVP supercomputer systems; the CRAY T3D series of massively
parallel processor (MPP) supercomputer systems; the CRAY Superserver 6400 series
of symmetric multiprocessor (SMP) systems; and associated software, peripherals
and support.
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.
In 1994, the CRAY EL94 system was announced as the newest member of the
Company's entry-level products. The CRAY J90 series, follow-on to the CRAY EL
series, was introduced in September 1994 and subsequently enhanced in early
1995. It is currently offered in configurations of four to thirty-two CPU's
ranging in price from $220,000 to $2.7 million and began shipping in early 1995.
The CRAY C90 series of supercomputer systems was first introduced in late
1991. At the time of its introduction, the CRAY C90 system was available in
configurations of between eight and sixteen CPU's. In March 1993, the Company
announced the availability of the CRAY C90 system in smaller, lower-priced
configurations and expanded memory. The CRAY T90 series of supercomputer
systems, the Company's largest and most powerful supercomputer, was officially
launched in February 1995 as the follow-on to the CRAY C90 series. There had
been some preliminary sales activity prior to the
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product's formal announcement. At the time of its introduction, the CRAY T90
system was offered in configurations ranging from one to 32 CPU's ranging in
price from $2.5 million up to $35 million per system with general availability
scheduled for the second half of 1995.
The CRAY T3D system was introduced in September 1993 as the Company's first
MPP supercomputer system. The CRAY T3D system is an MPP system which when
coupled to the Company's traditional PVP system creates a scalable heterogeneous
supercomputing system.
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, which is based on the Novell, Inc. operating system which is
considered an industry standard operating system.
CRAY SUPERSERVER 6400 SYSTEM. In October 1993, the Company introduced the
CRAY Superserver 6400 (CS6400) system based on the SPARC/Solaris architecture.
The CS6400 system is designed and manufactured by the Company's wholly-owned
subsidiary, Cray Research Superservers, Inc. (CRS), part of the Company's
Business Systems Division. 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 the Novell, Inc. operating system. The
CS6400 system uses an enhanced version of Solaris. The CS6400 system is a
binary-compatible upward extension of Sun's product line. (Binary compatibility
refers to the ability of a computer to run software applications from other
computers without modifications to the software.) As such, the CS6400 system
provides the basis for the Company's focus on the high-performance commercial
computing market, as well as an 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 5
terabytes (TBytes) of on-line disk storage.
The following table indicates the number of available CPU's, CPU cycle time
and the available amount of memory for the Company's supercomputing systems and
the superserver product line. 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
CYCLE
SYSTEM NUMBER OF TIME (IN MEMORY
SERIES ARCHITECTURE CPU'S NSECS) (IN MEGAWORDS)
------------ ------------ ---------- --------- --------------
<S> <C> <C> <C> <C>
CS6400 SMP 4 to 64 16.7 32 to 2048
CRAY Y-MP EL PVP 2 to 8 30.0 32 to 512
CRAY J90 PVP 4 to 32 10.0 32 to 1024
CRAY C90 PVP 1 to 16 4.2 64 to 1024
CRAY T90 PVP 1 to 32 2.2 64 to 1024
CRAY T3D MPP 32 to 2048 6.7 8 per CPU
</TABLE>
SOFTWARE. The Company's software products primarily include operating
systems, compilers and applications software. The Company also markets various
networking and remote computing and file management software.
The Company's current operating system, the UNICOS 8.0 system, functions
across all the Company's supercomputer lines, including the new CRAY J90 and
CRAY T90 products. The CRAY
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T3D runs its own derivative of UNICOS, called UNICOS MAX. In 1994, the Company
added the Open Software Foundation Distributed Computing Environment (DCE) as an
option to UNICOS, indicating the Company's continuing commitment to open
computing standards.
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 accommodate the reliability, availability and
serviceability (RAS) features of the CS6400 system.
The Company's compiler products, Fortran 77, Fortran 90, C and C++, support
the programming environment for all the Company's supercomputer systems. In
1994, the Company added the CRAFT programming model to its Fortran 77 product
for its CRAY T3D massively parallel systems. CRAFT reduces the effort needed to
program massively parallel systems by allowing directives that simplify the
process of distributing data and work among the parallel processors.
The Company's applications software products included two new offerings in
1994: the HEXAR product and the CMLogic product. The HEXAR product, released in
1994, generates meshes used in computational fluid-dynamics and other computer
assisted engineering simulations. The HEXAR product is a parallel and automatic
grid-generation software package that works directly with raw Computer Aided
Design surface data. Using the HEXAR product, several months of hand crafted
work can be replaced with less than a day of automated mesh generation. The
CMLogic product is a user interface that generates a spectrum of simulations and
interprets the results to automate the processes of designing molds for plastic
parts.
In 1994, the Company expanded its software offerings on the CS6400 system
and on non-Cray platforms. The Company licensed its Fortran 90 compiler
technology to the software business unit of Sun, extended the number of
platforms on which it supports its Network Queuing Environment software, and
launched four additional products on the SPARC platform; Fortran 90, Libsci,
Distributed Programming Environment, and Open Storage Management. The Network
Queuing Environment software manages the distribution of work among
supercomputers and many vendors' workstations. Fortran 90 is a part of the
Company's Fortran 90 Programming Environment software previously released on its
supercomputing platforms. Libsci is a set of scientific and engineering library
routines that the Company includes in its Programming Environments on its
supercomputing platforms. Distributed Programming Environment helps programmers
use workstations as development platforms for supercomputer codes. The Company
offers the Open Storage Management software in a cooperative marketing agreement
with Legent Corporation. This software, which is available on many vendors'
platforms, manages large quantities of data storage on multiple media, such as
disk and tape, in an open format.
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. Also, third-party
software applications that run in a Sun/Solaris operating environment will run
on the CS6400 system.
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 in sizes ranging from 128 megawords to 4096
megawords, at prices ranging from $250,000 to $6.3 million. In February 1993,
the Company introduced the DD-301, the first Intelligent Peripheral Interface,
3.5-inch drive product for its supercomputers.
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The Company also markets high-performance disk drives in various capacities
to meet the requirements of specific system configurations and support the mass
storage requirements of the Company's supercomputer products. These disk drives
include the DD-60, DD-62, DD-301, DA-301 and DS-42 disk subsystems.
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. The DD-301 drive delivers a sustained rate of 8.2 Mbytes/sec and has
storage capacity of 1.4 Gbytes. With capacity scalable from 5.48 Gbytes to 43.84
Gbytes, the DA-301 disk array uses the Company's highly reliable DD-301 disk
drive. The DA-301 has a maximum sustained transfer rate of 32 Mbytes/sec. Prices
range from $6,000 for a single DD-301 to $285,000 for one DS-42 disk subsystem.
The Company also sells 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.
MAINTENANCE AND SUPPORT. 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.
ACQUISITIONS
In September 1994, the Company acquired Savant Systems, Incorporated, a
privately held consulting firm, specializing in business system analysis,
project management and outsourcing, for $4.25 million in cash. The acquisition
was made in support of the Company's pursuit of the commercial parallel
processing market for decision support solutions.
In October 1994, the Company acquired Minnesota Supercomputer Center, Inc.
(MSCI) from the University of Minnesota and the University Foundation, for $10.4
million in cash. The acquisition was in support of the Company's efforts to
provide access to supercomputer capabilities, tools and resources to a wide
variety of users with varying needs for capacity, access, and support.
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. Supply of some memory product
components is limited by allocations that result from worldwide demand in excess
of supply. 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 1995 production needs.
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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 that 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 LEASING ACTIVITY
The Company's central marketing activities are located in Eagan, Minnesota,
and Business Systems' 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 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 a 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 non-priority basis.
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, 1994 was
$237 million, of which $214 million is expected to be installed in 1995. The
contract value of backlog at December 31, 1993 was $409 million, of which $405
million was installed in 1994. Sales to U.S. government agencies and commercial
customers primarily serving the U.S. government constitute a significant portion
of the Company's business. The backlog amount at December 31, 1994 includes
orders from the U.S. government and commercial customers primarily serving the
U.S. government for systems, peripherals and upgrades with a total contract
value of approximately $77 million; these orders are cancelable 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, price/performance, 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 edge in
this market. With the introduction of the CRAY Superserver 6400 (CS6400) system
in late 1993, the Company faces new competition 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 advantages may not
be reduced or lost as a result of technological, sales, marketing or financial
advantages
5
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achieved by competitors. Furthermore, some of the Company's competitors have
significantly greater resources than the Company. The Company's principal
competitors include AT&T Global Information Systems (formerly NCR), Convex
Computer Corporation, Cray Computer Corporation, Fujitsu, Ltd., Hewlett Packard,
Hitatchi Data Systems, IBM, Intel Corporation, NEC Corporation, Pyramid
Technology, Sequent Computer Systems, Inc., and Silicon Graphics, Inc.
DEVELOPMENT AND ENGINEERING
The Company is committed to leadership in the high-performance segment of
the computer systems market for scientific, technical, commercial and industrial
users. Its continued leadership will be dependent on successful development and
introduction of new products and enhancements to existing product lines. Such
product development and enhancements depend not only on 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. Development and engineering
costs, including costs of software development, totalled $141 million in 1994,
$146 million in 1993 and $162 million in 1992 or 15.3%, 16.3% and 20.3% of
revenue respectively.
Hardware development and engineering expenditures in 1994 were focused on
the CRAY T90 (the Company's high-end parallel vector supercomputer), the CRAY
T3D and future massively parallel processor (MPP) development, the CRAY J90
system development (the Company's line of lower-priced parallel vector
supercomputers), the CS6400 system and future SPARC based Superserver
development, and ongoing development and engineering of existing products. In
1994, the MPP project received renewed funding of $15.0 million over a
three-year period from the Advanced Research Projects Agency (ARPA), plus two
one-year extension options for an additional $5.0 million of funding per option.
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 is
redefining the architecture of its UNICOS operating system to improve its
scalable performance in anticipation of the industry moving to distributed
systems. The Company also continues to expand its network and communications and
open standards software, including the industry standard client/server data
sharing products that interoperate with systems from multiple vendors. During
1994, the Company delivered enhancements to several compiler products and
delivered compilers and load balancing software for use on desktop systems and
other non-Cray platforms.
ENVIRONMENTAL COMPLIANCE
Compliance by the Company with federal, state and local environmental
protection laws during 1994 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, 1994, the Company had 4,840 full-time employees; 1,172 in
development and engineering, 1,531 in manufacturing, 849 in marketing and sales,
1,075 in field service and 213 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.
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FINANCIAL INFORMATION ABOUT DOMESTIC AND FOREIGN OPERATIONS
Information concerning revenue, operating profit and identifiable assets by
geographical area and export sales for 1994, 1993 and 1992 is included on page
38 of the Company's 1994 Annual Report to Stockholders for the year ended
December 31, 1994 (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. The technological nature of the Company's
products may limit the Company's ability to market its products in some foreign
countries due to export licensing constraints.
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, 991,100 Owned
development, and service.
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 Manufacturing, marketing and 102,700 5/95
administrative operations
(primarily related to the
Business Systems Division)
San Diego, California Hardware and software 36,400 7/97
development operations
(primarily related to the
Business Systems Division)
Minneapolis, Minnesota Computing services and 100,100 6/00
administrative operations
(Minnesota Supercomputer
Center, Inc.)
</TABLE>
The Company also leases approximately 190,600 square feet primarily for
sales and service offices in various domestic locations. In addition, various
foreign sales and service subsidiaries have leased approximately 176,800 square
feet of office space. The Company believes its manufacturing and sales
facilities are adequate to meet its needs in 1995. (See also "Management's
Discussion and Analysis of Financial Condition" on page 31 of the Annual Report,
which section is incorporated herein by reference.)
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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, 1994.
EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
NAME AND TITLE AGE BIOGRAPHICAL INFORMATION
------------------------- --- ---------------------------------------------------------------------------
<S> <C> <C>
Robert H. Ewald 47 President and Chief Operating Officer since December 1994. Chief Operating
President and Chief Officer, Supercomputer Operations from December 1993 to December 1994.
Operating Officer Executive Vice President and General Manager, Supercomputer Operations from
and Director 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.
Andrew Scott 66 Vice Chairman since June 1983. Counsel for the Company from November 1981
Vice Chairman and to January 1995.
Director
Michael J. Lindseth 41 Executive Vice President, Sales since December 1994. Chief Financial
Executive Vice Officer from September 1991 to December 1994. Vice President, General
President, Sales Manager Entry-Level Systems from May 1990 to September 1991. Managing
Director, Cray UK Region from April 1988 to May 1990.
Don F. Whiting 54 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 45 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.
Laurence L. Betterley 41 Chief Financial Officer since November 1994. Vice President, Finance and
Chief Financial Officer Administration from November 1993 to November 1994. Corporate Controller
from March 1989 to November 1993.
Michael Dungworth 52 Vice President, Customer Service since February 1994. Vice President,
Vice President, Customer Central Region from December 1993 to February 1994. General Manager,
Service Central Region Sales from October 1992 to December 1993. MPP Product
Manager from January 1992 to October 1992. General Manager, Cray Asia
Pacific from December 1987 to January 1992.
</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.
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PART II
ITEM 5 -- MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
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>
1994 1993
-------------------- --------------------
HIGH LOW HIGH LOW
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
First Quarter......................................... $ 33.75 $ 26.13 $ 29.13 $ 22.75
Second Quarter........................................ 28.75 19.13 30.00 25.63
Third Quarter......................................... 23.63 20.25 28.00 20.63
Fourth Quarter........................................ 21.38 14.88 27.63 23.50
</TABLE>
"Investor Information," appearing on page 52 of the Annual Report, also is
incorporated herein by reference.
ITEM 6 -- SELECTED FINANCIAL DATA
"Historical Financial Summary," appearing on pages 26 and 27 of the Annual
Report, is incorporated herein by reference.
ITEM 7 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
"Management's Discussion and Analysis of Results of Operations," appearing
on pages 28 through 30 of the Annual Report, and "Management's Discussion and
Analysis of Financial Condition," appearing on page 31 of the Annual Report, are
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, 1994 and 1993 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, 1994, together with the report thereon of
KPMG Peat Marwick LLP dated January 25, 1995, appearing on pages 32 through 49
of the Annual Report, are incorporated herein by reference.
"Quarterly Financial Data," appearing on page 48 of the Annual Report, also
is incorporated herein by reference.
ITEM 9 -- CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
9
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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 1995 Annual
Meeting of Stockholders to be held on May 16, 1995 filed or to be filed (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 8 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 is
incorporated herein by reference.
ITEM 13 -- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
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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
1994 ANNUAL
REPORT TO
STOCKHOLDERS
--------------
<S> <C>
Consolidated Statements of Operations for the years ended December 31, 1994, 1993 and
1992................................................................................... 32
Consolidated Balance Sheets as of December 31, 1994 and 1993............................ 33
Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1993 and
1992................................................................................... 34
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1994,
1993 and 1992.......................................................................... 35
Summary of Significant Accounting Policies.............................................. 36
Notes to Consolidated Financial Statements.............................................. 38
Independent Auditors' Report............................................................ 49
</TABLE>
FINANCIAL STATEMENT SCHEDULES
All 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, 1994.
11
<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); (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 effective January 1, 1995.
(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 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).
(10.5) -- Second Amendment dated as of June 30, 1994 to the Credit Agreement dated as of
May 26, 1992 between the Company and Chemical Bank (incorporated by reference
to Exhibit 10.1 of Item 6 to the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1994).
(10.6) -- Term Loan Agreement dated as of April 8, 1994 between the Company and the
Sanwa Bank Limited (incorporated by reference to Exhibit 10.2 of Item 6 to the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994).
(10.7) -- Copy of Performance Incentive Plan.
</TABLE>
12
<PAGE>
EXHIBITS
<TABLE>
<C> <C> <S>
(11) -- Computation of Earnings (Loss) Per Share.
(13) -- 1994 Annual Report to Stockholders.
(21) -- Subsidiaries of the Registrant.
(23) -- Independent Auditors' Consent.
(24) -- Power of Attorney (see the signature page of this Report).
(27) -- Financial Data Schedule.
</TABLE>
13
<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/ ROBERT H. EWALD
--------------------------------------
Robert H. Ewald
President and Chief Operating Officer
(Principal Executive Officer)
By /s/ LAURENCE L. BETTERLEY
--------------------------------------
Laurence L. Betterley
Chief Financial Officer
(Principal Financial Officer)
By /s/ STEVEN E. SNYDER
--------------------------------------
Steven E. Snyder
Controller
(Principal Accounting Officer)
Dated: March 28, 1995
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
above or below constitutes and appoints Robert H. Ewald and Laurence L.
Betterley, 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.
14
<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>
Director March 28, 1995
------------------------------------
John F. Carlson
/s/ LAWRENCE E. EATON Director March 28, 1995
------------------------------------
Lawrence E. Eaton
/s/ ROBERT H. EWALD Director March 28, 1995
------------------------------------
Robert H. Ewald
/s/ CATHERINE M. HAPKA Director March 28, 1995
------------------------------------
Catherine M. Hapka
/s/ PHILIP G. HEASLEY Director March 28, 1995
------------------------------------
Philip G. Heasley
/s/ ROBERT G. POTTER Director March 28, 1995
------------------------------------
Robert G. Potter
/s/ ANDREW SCOTT Director March 28, 1995
------------------------------------
Andrew Scott
/s/ JAN H. SUWINSKI Director March 28, 1995
------------------------------------
Jan H. Suwinski
</TABLE>
15
<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, 1994.
<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); (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 effective January 1, 1995.
(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 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).
(10.5) -- Second Amendment dated as of June 30, 1994 to the Credit Agreement dated as of
May 26, 1992 between the Company and Chemical Bank (incorporated by reference to
Exhibit 10.1 of Item 6 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1994).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE
--------- -----
<C> <C> <S> <C>
(10.6) -- Term Loan Agreement dated as of April 8, 1994 between the Company and the Sanwa
Bank Limited (incorporated by reference to Exhibit 10.2 of Item 6 to the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994).
(10.7) -- Copy of Performance Incentive Plan.
(11) -- Computation of Earnings (Loss) Per Share.
(13) -- 1994 Annual Report to Stockholders.
(21) -- Subsidiaries of the Registrant.
(23) -- Independent Auditors' Consent.
(24) -- Power of Attorney (see the signature page of this Report).
(27) -- Financial Data Schedule.
</TABLE>
<PAGE>
EXHIBIT 3.2
AMENDED DECEMBER 21, 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 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.
2
<PAGE>
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 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.
3
<PAGE>
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.
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.
4
<PAGE>
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.
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.
5
<PAGE>
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 preside at all meetings of the
Board of Directors and the stockholders and shall perform such other duties as
the Board of Directors or the Executive Committee thereof may from time to time
prescribe.
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 act in the absence of the
Chairman of the Board and shall perform such other duties as the Board of
Directors or the Executive Committee thereof may from time to time prescribe.
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 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.
6
<PAGE>
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.
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.
7
<PAGE>
EXHIBIT 10.7
CRAY RESEARCH, INC.
PERFORMANCE INCENTIVE PLAN
AMENDED MARCH 28, 1995
The purpose of the Performance Incentive Plan is to recognize and reward
employees of Cray Research, Inc. and its subsidiaries (the "Company") for
contributions to the success of the Company's annual business objectives.
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 enhance shareholder value.
- Reward individual 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 leadership 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.
- More closely align employee and officer interests with that of shareholders.
ELIGIBILITY
All employees will be automatically eligible for participation in the plan.
With the approval of the CEO or President, some employees may be excluded from
participation in the plan.
Group levels are as follows:
<TABLE>
<CAPTION>
GROUP GRADES
---------- --------------------------------------------------------------------
<S> <C>
Group 0 Employees excluded from participation with the approval of the CEO
or President.
Group 50 Grades not specified below
Group 1 A6, A7, CS4, CS5, F5, F6, H8, H9, IN4, IN5, S7, S8, XA4, XH3
Group 2 A8, A9, CS6, CS7, F7, F8, H10, H11, IN6, IN7, S9, S10, XA5, XF4,
XJ4, XJ5
Group 3 A10, A11, S11, S12, H12, H13
Group 4 A12
Group 5 A13, A14
Group 6 A15
Group 7 A16
</TABLE>
PERFORMANCE TARGETS
A Company measure will be determined and performance levels established by
the Compensation and Development Committee upon recommendation by the Chief
Executive Officer or President. A
1
<PAGE>
measure for each participating business unit will be established annually and
approved by the Chief Executive Officer or President. Concurrently, minimum and
maximum levels of performance will be determined for use in calculating awards
under the Plan.
PERFORMANCE RESULTS
The Chief Executive Officer or President will recommend to the Compensation
and Development Committee for approval the performance on the past year's
Company performance target at the first meeting of each calendar year. Business
units' past year's performance will be approved by the Chief Executive Officer
or President in January and reviewed by the Compensation and Development
Committee.
DETERMINATION AND PAYMENT OF AWARDS
All participants will have their awards determined by Company and business
unit performance.
Employees in Groups 50, 1, 2, 3 and 4 will have a component of their awards
based on performance against individual objectives. Performance objectives for
these participants will be based on the performance of specific job
responsibilities that support the achievement of Company and business unit
objectives. At the beginning of the Plan year, these participants, will work
with their managers, to develop measurable objectives to be used in determining
individual performance. Each participant and his/her manager will work
throughout the year to ensure on-going relevancy of objectives, reflecting
changing business conditions. At the end of the Plan year, each participant's
manager will assess performance against objectives and recommend an individual
award percentage which accurately reflects the individual's performance; these
recommendations are submitted to the appropriate Vice President for review and
approval. If individual objectives are not met, adjustment in the individual
award percentage will be made down to the minimum level of zero. If individual
objectives are exceeded, adjustments up to the maximum level are to be made. The
full range of awards, 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 or President.
Following approval of Company and business unit objectives and the
satisfaction of eligibility requirements, each participant will be notified of
the manner by which his or her award will be determined, the range of possible
awards, and other appropriate information.
The individual payout under this Plan is expressed as a percentage of
eligible wages. For the purposes of this Plan, eligible wages for Groups 1-7
include regular pay, overtime pay, shift differential pay, stand-by pay,
short-term disability paid by Cray Research, personal time and holiday time. It
does not include income from commissions, quota attainment payments, annual
incentive plan payouts, the Cash Bonus Program, discretionary awards, imputed
income, or any amount included on an employee's W-2 for the grant or exercise of
a stock option. It does not include allowances or reimbursement for expenses,
merchandise discounts or other similar remunerations. Eligible wages for Group
50 is the same as for Groups 1-7 with the addition of commissions and 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 business day of the year. 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.
2
<PAGE>
No award payments will be made to any Plan participants 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 or the stated minimum level of
company performance is not achieved.
Award payments will be made in cash except that employees in Groups 50, 1,
2, and 3, may take up to 50% of the award in common stock of the Company at the
participant's election, not withstanding awards to officers who are subject to
the reporting requirements of Section 16b of the Securities and Exchange Act of
1934 shall be paid only in cash. 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 eligible to participate in the
Deferred Compensation Plan 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 of the status of the deferred account. Awards are not transferable.
The Compensation and Development Committee shall approve elected officer
awards.
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.
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.
3
<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
----------------------------------------------
1994 1993 1992
------------ ----------- -----------
<S> <C> <C> <C>
PRIMARY EARNINGS (LOSS) PER SHARE
Net earnings (loss)............................... $ 55,696 $60,855 $(14,875)
Add -- net earnings effect of interest on 6 1/8%
convertible subordinated debentures...... --(a) --(a) --(a)
------------ ----------- -----------
Net earnings (loss) applicable to common and
common equivalent shares......................... $ 55,696 $60,855 $(14,875)
------------ ----------- -----------
------------ ----------- -----------
Weighted average number of common shares
outstanding during the period.................... 25,841 26,117 26,472
Add -- common stock equivalents -- outstanding
stock options............................ 4 1 21
-- common stock equivalents -- convertible
debentures................................ --(a) --(a) --(a)
------------ ----------- -----------
Weighted average number of common and common
equivalent shares outstanding, as adjusted....... 25,845 26,118 26,493
------------ ----------- -----------
------------ ----------- -----------
Earnings (loss) per common and common equivalent
share............................................ $ 2.16 $ 2.33 $ (.56)
------------ ----------- -----------
------------ ----------- -----------
FULLY DILUTED EARNINGS (LOSS) PER SHARE
Net earnings (loss) per primary computation
above............................................ $ 55,696 $60,855 $(14,875)
------------ ----------- -----------
------------ ----------- -----------
Weighted average number of common shares
outstanding, as adjusted per primary computation
above............................................ 25,845 26,118 26,493
Add -- additional dilutive effect of outstanding
options.................................. -- -- --
------------ ----------- -----------
Weighted average number of common and common
equivalent shares outstanding, as adjusted....... 25,845 26,118 26,493
------------ ----------- -----------
------------ ----------- -----------
Earnings (loss) per common and common equivalent
share assuming full dilution..................... $ 2.16 $ 2.33 $ (.56)
------------ ----------- -----------
------------ ----------- -----------
<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>
SUMMARY OF OPERATIONS
(In thousands, except per share data) 1994 1993 1992
------------------------------------------------
------------------------------------------------ -------------------------------------------------
<S> <C> <C> <C>
Revenues:
Sales $ 706,997 $ 675,492 $ 543,735
Leased systems 20,728 23,651 54,066
Service fees 193,884 195,714 199,777
------------------------------------------------ -------------------------------------------------
Total revenue 921,609 894,857 797,578
Cost of revenue 536,443 503,746 484,135
------------------------------------------------ -------------------------------------------------
Gross profit 385,166 391,111 313,443
------------------------------------------------ -------------------------------------------------
Operating expenses:
Development and engineering 140,632 145,700 161,888
Marketing, general and administrative 170,062 157,616 166,987
------------------------------------------------ -------------------------------------------------
Total operating expenses 310,694 303,316 328,875
------------------------------------------------ -------------------------------------------------
Operating income (loss) 74,472 87,795 (15,432)
Other income (expense), net 3,261 (3,352) (206)
------------------------------------------------ -------------------------------------------------
Earnings (loss) before income taxes 77,733 84,443 (15,638)
Income tax (expense) benefit (22,037) (23,588) 763
------------------------------------------------ -------------------------------------------------
Net earnings (loss) $ 55,696 $ 60,855 $ (14,875)
------------------------------------------------ -------------------------------------------------
Earnings (loss) per share $ 2.16 $ 2.33 $ (0.56)
------------------------------------------------ -------------------------------------------------
Average number of common and common
equivalent shares outstanding 25,845 26,118 26,493
------------------------------------------------ -------------------------------------------------
FINANCIAL POSITION (In thousands)
------------------------------------------------
------------------------------------------------
Receivables $ 229,808 $ 186,852 $ 155,797
Inventories 207,496 315,100 263,284
Other current assets 96,734 125,361 86,100
------------------------------------------------ -------------------------------------------------
Total current assets 534,038 627,313 505,181
Long-term receivables 20,959 10,593 12,226
Leased systems and spares, net 110,207 99,859 96,296
Property, plant and equipment, net 265,116 225,649 257,775
Investments and other assets 251,559 206,354 149,786
------------------------------------------------ -------------------------------------------------
Total assets 1,181,879 1,169,768 1,021,264
Current liabilities 237,939 271,963 184,312
Long-term debt 97,000 105,478 106,402
Other long-term obligations 18,030 12,986 7,489
------------------------------------------------ -------------------------------------------------
Stockholders' equity $ 828,910 $ 779,341 $ 723,061
------------------------------------------------ -------------------------------------------------
GENERAL DATA AND RATIOS
------------------------------------------------
------------------------------------------------
Current ratio 2.2:1 2.3:1 2.7:1
Quick ratio 1.8:1 1.4:1 1.7:1
Working capital $ 296,099 $ 355,350 $ 320,869
Return on stockholders' average equity 6.9% 8.2% (2.0)%
Cash expenditures for property,
plant and equipment $ 87,266 $ 45,691 $ 90,035
Depreciation and amortization $ 126,250 $ 124,350 $ 126,850
Total debt as percent of total debt
and stockholders' equity 11% 12% 13%
Net earnings (loss) as percent of
average total assets 4.7% 5.6% (1.4)%
Book value per share $ 32.54 $ 30.00 $ 27.76
Shareholders of record at year-end 5,522 5,859 6,137
Installed systems base at customer sites 638 505 446
Number of employees at year-end 4,840 4,960 4,895
Revenue per average number of
employees (in thousands) $ 188 $ 181 $ 146
26
<PAGE>
1991 1990 1989 1988 1987 1986 1985 1984
-----------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C>
$ 602,569 $ 556,163 $ 574,667 $ 557,266 $ 515,815 $ 457,464 $ 277,440 $160,389
79,390 79,856 72,005 75,598 72,530 67,995 55,093 37,795
180,498 168,361 138,028 123,442 98,991 71,226 47,625 30,568
-----------------------------------------------------------------------------------------------------------
862,457 804,380 784,700 756,306 687,336 596,685 380,158 228,752
404,221 360,340 380,754 292,774 248,895 206,051 134,843 83,044
-----------------------------------------------------------------------------------------------------------
458,236 444,040 403,946 463,532 438,441 390,634 245,315 145,708
-----------------------------------------------------------------------------------------------------------
143,232 130,164 145,045 119,357 110,381 89,150 49,851 37,997
152,264 155,414 141,611 126,219 106,826 84,894 63,105 43,610
-----------------------------------------------------------------------------------------------------------
295,496 285,578 286,656 245,576 217,207 174,044 112,956 81,607
-----------------------------------------------------------------------------------------------------------
162,740 158,462 117,290 217,956 221,234 216,590 132,359 64,101
3,881 9,624 9,977 15,883 11,178 8,625 3,484 2,790
-----------------------------------------------------------------------------------------------------------
166,621 168,086 127,267 233,839 232,412 225,215 135,843 66,891
(53,574) (55,092) (38,222) (77,208) (85,336) (100,400) (60,233) (21,539)
-----------------------------------------------------------------------------------------------------------
$ 113,047 $ 112,994 $ 89,045 $ 156,631 $ 147,076 $ 124,815 $ 75,610 $ 45,352
-----------------------------------------------------------------------------------------------------------
$ 4.15 $ 4.02 $ 3.02 $ 4.99 $ 4.65 $ 3.99 $ 2.49 $ 1.53
-----------------------------------------------------------------------------------------------------------
28,160 28,957 30,666 32,135 32,420 32,021 30,370 29,679
-----------------------------------------------------------------------------------------------------------
$ 244,242 $ 117,236 $ 179,762 $ 116,984 $ 96,887 $ 49,930 $ 26,698 $ 22,710
244,524 179,952 202,746 236,260 192,888 187,477 140,266 82,730
69,438 89,402 90,950 185,194 179,730 86,642 81,986 87,120
-----------------------------------------------------------------------------------------------------------
558,204 386,590 473,458 538,438 469,505 324,049 248,950 192,560
25,863 27,219 8,154 8,559 9,907 5,461 5,789 8,156
109,868 104,987 105,635 89,987 65,880 60,476 54,280 49,263
249,080 241,233 205,130 198,370 152,055 137,174 92,589 56,286
136,031 184,346 179,474 156,079 204,913 172,870 41,520 23,831
-----------------------------------------------------------------------------------------------------------
1,079,046 944,375 971,851 991,433 902,260 700,030 443,128 330,096
206,880 204,166 233,152 199,461 167,560 118,353 111,018 75,682
107,426 105,450 143,453 107,531 108,603 122,313 9,060 10,158
6,068 5,561 944 7,689 15,483 17,508 18,106 23,804
-----------------------------------------------------------------------------------------------------------
$ 758,672 $ 629,198 $ 594,302 $ 676,752 $ 610,614 $ 441,856 $ 304,944 $220,452
-----------------------------------------------------------------------------------------------------------
2.7:1 1.9:1 2.0:1 2.7:1 2.8:1 2.7:1 2.2:1 2.5:1
1.9:1 1.0:1 1.2:1 1.9:1 2.3:1 1.4:1 1.4:1 1.5:1
$ 351,324 $ 182,424 $ 240,306 $ 338,977 $ 301,945 $ 205,696 $ 137,932 $116,878
16.8% 18.8% 13.3% 23.9% 27.6% 33.0% 28.2% 23.6%
$ 73,341 $ 81,811 $ 99,237 $ 74,684 $ 40,162 $ 60,052 $ 44,082 $ 25,658
$ 119,382 $ 111,996 $ 102,180 $ 83,247 $ 72,056 $ 56,800 $ 40,973 $ 32,427
13% 18% 24% 15% 16% 23% 6% 17%
11.2% 11.8% 9.1% 16.5% 18.4% 21.8% 19.6% 14.9%
$ 28.53 $ 24.05 $ 21.11 $ 23.14 $ 19.85 $ 14.59 $ 10.23 $ 7.51
5,589 6,121 6,287 5,966 5,802 5,019 4,647 3,735
309 263 240 220 173 138 108 84
5,395 4,857 4,708 5,237 4,308 3,999 3,180 2,203
$ 170 $ 168 $ 150 $ 161 $ 164 $ 162 $ 140 $ 123
</TABLE>
27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
Cray Research, Inc. and Subsidiaries
OVERVIEW AND OUTLOOK
Fiscal years 1994 and 1995 constitute a critical transition period for the
Company as it prepares itself for the future. As the Company moves to higher
unit volumes and lower average selling prices, it is focusing on retaining and
building its traditional high performance supercomputing base, while also
entering new, more competitive markets where it has not had a presence in the
past. To better compete in these markets and under these conditions, Cray will
make operational changes in 1995 to improve its efficiency and achieve a more
competitive cost structure. At the same time, 1995 will be a year of product
transition, both at the high-end and the low-end of the product line. Some
of these new products will not be available for volume shipment until the second
half of 1995.
These factors have resulted in an outlook for 1995 that includes a decrease
in revenue from 1994 levels by as much as 10%, and a decrease in gross margin as
well. Operating losses in the first half of the year should be offset by
anticipated profits in the second half. For the full year, the Company
anticipates break-even operating results prior to restructuring and one-time
charges. The Company is currently reviewing the nature and extent of necessary
restructuring and has not yet completed full evaluation of the level of charges
to be taken. It is anticipated that this evaluation will be completed by the end
of second quarter 1995.
REVENUES
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
High-end customer systems installed (units):
Parallel Vector Processing 59 59 63
Massively Parallel Processing 29 1 --
---- ---- ----
88 60 63
---- ---- ----
Low-end customer systems installed (units):
Parallel Vector Processing 73 28 130
Symmetric Multiprocessing 34 13 7
---- ---- ----
107 41 137
---- ---- ----
Total customer system installations 195 101 200
---- ---- ----
---- ---- ----
High-end customer system lease-to-purchase
conversions (units) 6 2 16
---- ---- ----
---- ---- ----
</TABLE>
<TABLE>
<CAPTION>
Percent of total revenue Change from prior year
------------------------------------- ----------------------
1994 1993 1992 1994 1993
------- ------- ------- ------- -------
<C> <C> <C> <S> <C> <C>
Revenue:
76.7% 75.5% 68.2% Sales 4.7 % 24.2 %
2.2 2.6 6.8 Leased systems (12.4) (56.3)
21.1 21.9 25.0 Service fees (0.9) (2.0)
------- ------- ------- -------------------- ------- -------
100.0% 100.0% 100.0% Total revenue 3.0 % 12.2 %
------- ------- ------- -------------------- ------- -------
------- ------- ------- ------- -------
</TABLE>
Sales revenues increased 4.7% in 1994 after a 24.2% increase in 1993. In
total, the Company installed substantially more systems in 1994 compared with
1993, but at a lower average selling price. For example, average revenue per new
high-end system sold decreased to $8.5 million in 1994, from $15.8 million in
1993. Six of the Company's largest systems, the CRAY C916 system, were installed
in 1994, compared to twelve in 1993. The number of systems installed in 1994
increased significantly for two newer product categories: the CRAY T3D massively
parallel processor (MPP) system, and the low-end CRAY C90 products. In addition,
revenue increased in several other areas, most notably: upgrade and peripheral
sales and the new CRAY Superserver CS6400 product.
The sales revenue increase of 24.2% in 1993 compared to 1992 was primarily
the result of an increase in the number of CRAY C916 systems sold, from six in
1992 (the year of introduction) to twelve in 1993. Average selling prices
increased from $7.3 million in 1992 to $15.8 million in 1993. The large gains in
high-end systems sales revenue were only partially offset by revenue declines in
the low-end system sales and lease-to-purchase conversions. Both of these
declines were caused by volume decreases. The reduced low-end system 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.
28
<PAGE>
REVENUES (CONTINUED)
Leased systems revenue decreased 12.4% in 1994 from 1993, and 56.3% in 1993
compared with 1992. These decreases reflect the purchase conversion of most of
the large revenue-generating systems in the lease base, and the shift in the
lease base toward smaller systems.
Service fees declined 0.9% in 1994 after a 2.0% decrease in 1993. The 1994
decrease was due to customers migrating to lower priced service options offset
by the additional service revenue generated by the Minnesota Supercomputer
Center which was acquired in fourth quarter of 1994. The 1993 decrease was
largely the result of foreign currency exchange rate fluctuations impacting
international revenues.
Revenue from U.S. customers represented 53%, 63%, and 57% of consolidated
revenue during 1994, 1993, and 1992, respectively. Sales in Asia Pacific were
stronger in 1994 compared to 1993, after a decrease from 1992 to 1993. Sales in
the U.S. decreased from 1993 to 1994, after an increase from 1992 to 1993. Sales
in Western Europe were relatively flat for the three year period.
Revenue from U.S. government agencies represented 36%, 43%, and 31% of
consolidated revenue during 1994, 1993, and 1992, respectively. The higher ratio
in 1993 reflects the impact of a relatively high number of large CRAY C916
systems sold to U.S. government agencies that year. This increase was contrary
to a trend that began in 1989 as the Company's business has shifted to a higher
proportion of commercial customers and to new markets, especially for smaller
systems.
The Company is expecting a decrease in total revenue in 1995 by as much as
10% from 1994 levels. This is due to changes in the make-up of sales revenue
from high-end systems to a higher volume of low-end systems with lower average
selling prices, and product transition on the high-end from the CRAY C90 series
to the CRAY T90 series, which will not be shipping in significant quantities
until the second half of 1995.
In addition, MPP sales revenue is not expected to grow in 1995 over 1994,
due primarily to the slow growth of new applications for this market. The
Company believes that over time, as more applications become available, this
segment will become increasingly important as a source of revenue.
GROSS PROFIT
<TABLE>
<CAPTION>
Percent of related revenue Change from prior year
------------------------------------- ----------------------
1994 1993 1992 1994 1993
------- ------- ------- ------- -------
<C> <C> <C> <S> <C> <C>
Gross profit percent:
47.6% 49.1% 45.1% Sales (1.5)% 4.0 %
29.8 46.1 29.5 Leased systems (16.3) 16.6
21.9 24.9 26.2 Service fees (3.0) (1.3)
------- ------- ------- ------------------------------ ------- -------
41.8% 43.7% 39.3% Total gross profit percent (1.9)% 4.4 %
------- ------- ------- ------------------------------ ------- -------
------- ------- ------- ------- -------
</TABLE>
Total gross margin was 41.8% in 1994 compared with 43.7% in 1993 and 39.3%
in 1992. Changes in sales margins have the largest impact on total margins.
Sales margins decreased from 49.1% in 1993 to 47.6% in 1994 mainly as a result
of an $8.3 million restructuring charge incurred in 1994 which decreased sales
margins by 1.2%. Sales margins increased from 45.1% in 1992 to 49.1% in 1993
primarily reflecting a $23.9 million restructuring charge in 1992, which
decreased the sales margin by 4.4%.
Lease margins vary widely depending on the mix of systems in the lease
base, but have little impact on overall margins due to the low value of lease
revenues and margins compared to the value of sales and service revenues and
margins.
Service margins declined to 21.9% in 1994 compared to 24.9% in 1993 and
26.2% in 1992. Service margin declines are due to a change in the installed base
from older products, with fully depreciated spares, to new products; a shift
toward smaller configurations; and customer selection of lower priced service
options with less coverage as systems become more reliable.
In 1995, total gross margins are expected to decline compared with 1994 due
to several factors. Sales gross margins are expected to decline due to a shift
in the product mix to smaller systems and also due to product transition on the
high-end systems. Service revenues, which have substantially lower gross margins
than product revenue, are expected to represent a greater percentage of total
revenues in 1995 due to expected declines in sales revenues.
29
<PAGE>
<TABLE>
<CAPTION>
EXPENSES
Percent of total revenue Change from prior year
------------------------ -----------------------
1994 1993 1992 1994 1993
------- ------- ------- ------- -------
<C> <C> <C> <S> <C> <C>
Operating expenses:
15.3% 16.3% 20.3% Development and engineering (3.5)% (10.0)%
15.6 14.8 17.6 Marketing 8.2 (5.6)
2.8 2.8 3.3 General and administrative 6.1 (5.7)
------- ------- ------- ----------------------------- ------- -------
33.7% 33.9% 41.2% Total operating expenses 2.4 % (7.8)%
------- ------- ------- ----------------------------- ------- -------
------- ------- ------- ------- -------
</TABLE>
Although total operating expenses increased only slightly (2.4%) from 1993
to 1994, there was a shift away from development and engineering to sales and
marketing expenses in 1994. Total operating expenses decreased 7.8% from 1992 to
1993 reflecting restructuring charges in 1992 of $17.6 million.
During the past three years, development and engineering expenditures have
been split about equally between software and hardware. The largest software
development expenses have been for operating systems and network and
communications systems. Hardware development and engineering expenditures have
been focused on the CRAY T90, the CRAY J90, and the CRAY T3D systems.
The MPP project has received funding from the Advanced Research Projects
Agency (ARPA) under two different agreements. Under the first agreement, ARPA
contributed $12.7 million in funding support over a three year period ending in
1993. Under the second agreement, ARPA will contribute $15 million in funding
support over a three year period ending in 1996 with two one-year extension
options for an additional $5 million of funding per option. Based on achievement
of milestones contained in the agreements, $5.0 million, $4.2 million, and $4.5
million was earned in 1994, 1993, and 1992, respectively, and recorded as a
reduction of development and engineering expenses.
Development and engineering expenditures are expected to decline both in
absolute dollars and as a percent of revenue in 1995 compared with 1994 as the
Company increasingly focuses its development efforts on fewer projects,
eliminates redundant efforts, and reduces unnecessary costs.
Marketing expenses have increased due to investments in marketing,
applications, and field sales resources--especially for the low-end business.
The Company anticipates that sales and marketing expenses will increase again
in 1995 compared with 1994.
General and administrative (G&A) expenses were up slightly in 1994 over
1993 due primarily to retirement accruals for departing employees and increased
consulting fees. G&A expenses were down slightly from 1992 to 1993 due mainly to
the absence of restructuring charges in 1993. The Company intends to reduce G&A
expenses in 1995, compared with 1994. Overall, total operating expenses in 1995
before restructuring charges are expected to be relatively flat compared with
1994.
Other income/expense changed to $3.3 million income in 1994 from $3.4
million expense in 1993 due to the $2.6 million gain on the repurchase of
convertible debentures and foreign currency exchange gains in 1994. Other
income/expense changed from $0.2 million expense in 1992 to $3.4 million expense
in 1993 due to foreign currency exchange losses in 1993.
The effective tax rate for 1994 was 28.4% compared with 27.9% in 1993 and
4.9% in 1992. The 1992 tax benefit was low relative to the pre-tax loss because
of limitations on the recognition of carryforwards related to the Federal
Alternative Minimum Tax and excess foreign tax credits.
30
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
Cray Research, Inc. and Subsidiaries
FINANCIAL CONDITION
On December 31, 1994, the Company had cash and equivalents of $55.5 million
and long-term cash investments of $200 million, for total cash and long-term
cash investments of $255.5 million, compared to $228.4 million a year earlier.
Operations provided significant cash in both years, $180.3 million in 1994 and
$172.7 million in 1993. Cash flows were significantly enhanced in 1994 by the
large decrease in inventory balances. This inventory decrease was largely due to
production process changes implemented in the fourth quarter of 1994 designed to
significantly reduce cycle times for high-end system manufacturing processes. To
implement these changes, some production lines were idle for a four to eight
week period during the fourth quarter of 1994. In 1995 the Company expects cash
flow to be positive before the impact of any restructuring activity.
Excluding transfers between operating cash and long-term cash investments,
total uses of cash for investing and financing activities grew from $97.3
million in 1993 to $156.7 million in 1994. Capital expenditures increased $41.6
million in 1994 to $87.3 million. However, spending was unusually low in 1993.
Capital expenditures decreased by $44.3 million from $90.0 million in 1992 to
only $45.7 million in 1993. Capital expenditures increased in several areas in
1994, most notably in data equipment and investments in manufacturing facilities
and equipment to bring new products to market. In 1995 the Company expects
capital expenditures to decrease moderately from 1994 levels, reflecting a
reduction in investments in manufacturing facilities and equipment for new
product lines.
The Company's long-term debt obligations totalled $97.0 million at December
31, 1994 down from $105.5 million a year earlier. This decrease was due to the
retirement in April 1994 of convertible debentures with a face value of $23
million and the simultaneous borrowing of $20.0 million under a term loan
agreement of which $5 million is in current debt. The Company's long-term debt
obligations require repayments of $7.3 million in 1995, and $5 million each year
1996 through 1998. No other significant payments are required until the year
2001.
In 1994, the Company repurchased 829,200 shares of common stock for $19.4
million, compared to 288,200 shares for $7.6 million in 1993. At the end of
1994, the Company had authority to repurchase approximately 663,000 additional
shares.
Stockholders' equity increased 6.4% in 1994, primarily from the year's net
earnings. Book value per share increased to $32.54 from $30.00 a year earlier.
Return on stockholders' average equity was 6.9% in 1994 compared to 8.2% in
1993.
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 unsecured line of credit which is unused, and adequate
borrowing capacity available to meet future cash requirements, if needed, though
it has no current plans to use either.
FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company operates in a highly competitive environment that is rapidly
changing and that involves a number of risks, many of which are beyond the
Company's control. These risks could result in situations that would adversely
impact the Company's performance. The following list highlights some of these
risk factors:
- government agencies/research institutions represent a major customer
group-governmental spending reductions could adversely affect results;
- international sales comprise nearly half of sales revenues--trade
protection measures, export licensing regulations, changes in political
conditions, or changes in foreign currency exchange rates could adversely
affect results;
- a small number of large system sales comprise a significant portion of the
sales revenue--the timing of equipment acceptance dates can significantly
affect results for any particular period;
- recently introduced products comprise a substantial portion of the revenue
in any particular period--development or manufacturing delays could
adversely affect results in a particular period;
- due to the high technology nature of the Company's products, component
availability is a critical factor--delays in the availability of components
could adversely affect results in any period by impacting the ability to
manufacture and deliver products.
31
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
Cray Research, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Years ended December 31
---------------------------------------
1994 1993 1992
(In thousands, except per share data)
--------- --------- ---------
<S> <C> <C> <C>
REVENUE:
Sales $ 706,997 $ 675,492 $ 543,735
Leased systems 20,728 23,651 54,066
Service fees 193,884 195,714 199,777
------------------------------------------- --------- --------- ---------
Total revenue 921,609 894,857 797,578
------------------------------------------- --------- --------- ---------
COST OF REVENUE:
Cost of sales 370,491 344,052 298,588
Cost of leased systems 14,545 12,757 38,096
Cost of services 151,407 146,937 147,451
------------------------------------------- --------- --------- ---------
Total cost of revenue 536,443 503,746 484,135
------------------------------------------- --------- --------- ---------
GROSS PROFIT 385,166 391,111 313,443
------------------------------------------- --------- --------- ---------
OPERATING EXPENSES:
Development and engineering 140,632 145,700 161,888
Marketing 143,456 132,534 140,393
General and administrative 26,606 25,082 26,594
------------------------------------------- --------- --------- ---------
Total operating expenses 310,694 303,316 328,875
------------------------------------------- --------- --------- ---------
OPERATING INCOME (LOSS) 74,472 87,795 (15,432)
Other income (expense), net 3,261 (3,352) (206)
------------------------------------------- --------- --------- ---------
EARNINGS (LOSS) BEFORE INCOME TAXES 77,733 84,443 (15,638)
Income tax (expense) benefit (22,037) (23,588) 763
------------------------------------------- --------- --------- ---------
NET EARNINGS (LOSS) $ 55,696 $ 60,855 $ (14,875)
------------------------------------------- --------- --------- ---------
--------- --------- ---------
EARNINGS (LOSS) PER COMMON AND COMMON
EQUIVALENT SHARE $ 2.16 $ 2.33 $ (0.56)
------------------------------------------- --------- --------- ---------
--------- --------- ---------
AVERAGE NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 25,845 26,118 26,493
------------------------------------------- --------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
32
<PAGE>
CONSOLIDATED BALANCE SHEETS
Cray Research, Inc. and Subsidiaries
<TABLE>
<CAPTION>
December 31
--------------------------------
1994 1993
------------ ------------
(In thousands)
<S> <C> <C>
ASSETS
----------------------------------------------------------------------
----------------------------------------------------------------------
CURRENT ASSETS:
Cash and equivalents $ 55,543 $ 78,373
Receivables 229,808 186,852
Inventories 207,496 315,100
Other current assets 41,191 46,988
---------------------------------------------------------------------- ------------ ------------
Total current assets 534,038 627,313
LONG-TERM RECEIVABLES 20,959 10,593
LEASED SYSTEMS AND SPARES, NET 110,207 99,859
PROPERTY, PLANT AND EQUIPMENT, NET 265,116 225,649
INVESTMENTS AND OTHER ASSETS 251,559 206,354
---------------------------------------------------------------------- ------------ ------------
$ 1,181,879 $ 1,169,768
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
----------------------------------------------------------------------
----------------------------------------------------------------------
CURRENT LIABILITIES:
Current installments of long-term debt $ 7,344 $ 2,216
Accounts payable 37,999 41,679
Accrued expenses 110,373 109,300
Income taxes payable 7,009 30,422
Deferred income and customer advances 75,214 88,346
---------------------------------------------------------------------- ------------ ------------
Total current liabilities 237,939 271,963
---------------------------------------------------------------------- ------------ ------------
LONG-TERM DEBT, EXCLUDING CURRENT INSTALLMENTS 97,000 105,478
OTHER LONG-TERM OBLIGATIONS 18,030 12,986
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 91,973 102,489
Retained earnings 922,560 866,864
Foreign currency translation adjustments 2,774 (3,024)
Treasury stock, at cost; 6,041,000 and 5,531,000 shares (219,908) (218,499)
---------------------------------------------------------------------- ------------ ------------
Total stockholders' equity 828,910 779,341
---------------------------------------------------------------------- ------------ ------------
$ 1,181,879 $ 1,169,768
------------ ------------
------------ ------------
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
33
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cray Research, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Years ended December 31
----------------------------------------
1994 1993 1992
---------- ---------- ----------
(In thousands)
<S> <C> <C> <C>
CASH FLOWS PROVIDED BY (USED IN) OPERATIONS:
Receipts from customers $ 863,842 $ 885,111 $ 904,266
Payments to suppliers and employees (656,560) (698,006) (690,693)
Income taxes paid (28,393) (14,830) (27,686)
Interest received 10,799 9,046 11,104
Interest paid (8,529) (9,171) (9,336)
Other, net (880) 598 (839)
--------------------------------------------------------- ---------- ---------- ----------
Total cash flows provided by operations 180,279 172,748 186,816
--------------------------------------------------------- ---------- ---------- ----------
CASH FLOWS PROVIDED BY (USED IN) INVESTING:
Expenditures for property, plant and equipment (87,266) (45,691) (90,035)
Expenditures for leased systems and spares (55,003) (46,991) (37,227)
Transfers to long-term investments (50,000) (50,000) (30,000)
Other, net (1,502) 2,120 9,870
--------------------------------------------------------- ---------- ---------- ----------
Total cash flows used in investing (193,771) (140,562) (147,392)
--------------------------------------------------------- ---------- ---------- ----------
CASH FLOWS PROVIDED BY (USED IN) FINANCING:
Proceeds from borrowings 22,183 5,554 13,250
Proceeds from purchases of common stock by employees 7,311 5,564 11,225
Repayments of debt (23,019) (10,208) (15,014)
Repurchases of common stock (19,407) (7,633) (30,041)
--------------------------------------------------------- ---------- ---------- ----------
Total cash flows used in financing (12,932) (6,723) (20,580)
--------------------------------------------------------- ---------- ---------- ----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 3,594 (2,043) (854)
--------------------------------------------------------- ---------- ---------- ----------
INCREASE (DECREASE) IN CASH AND EQUIVALENTS (22,830) 23,420 17,990
CASH AND EQUIVALENTS AT BEGINNING OF YEAR 78,373 54,953 36,963
--------------------------------------------------------- ---------- ---------- ----------
CASH AND EQUIVALENTS AT END OF YEAR $ 55,543 $ 78,373 $ 54,953
--------------------------------------------------------- ---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
34
<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, 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)
Stock plans - - (10,687) - - (319) 17,998
Income tax benefit from stock plans - - 171 - - - -
Translation adjustments - - - - 5,798 - -
Repurchases of common stock - - - - - 829 (19,407)
Net earnings - - - 55,696 - - -
-------------------------------------- ---------- ---------- ---------- ---------- ---------- --------- ----------
BALANCE AT DECEMBER 31, 1994 31,511 $31,511 $ 91,973 $922,560 $2,774 6,041 $(219,908)
-------------------------------------- ---------- ---------- ---------- ---------- ---------- --------- ----------
---------- ---------- ---------- ---------- ---------- --------- ----------
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
35
<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 for income 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.
36
<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.
Under SFAS No. 115, "Accounting for Certain Debt and Equity Securities,"
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 implementation of this standard in 1994 did not 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 two to four years. Spares are amortized to cost of services using the
straight-line method over an estimated useful life of two 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 AND GOODWILL
Other assets include product technology and goodwill, both of which
represent the excess of the cost of a purchased business over the fair value of
the net assets acquired. Product technology and goodwill are amortized using the
straight-line method over five to 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
consolidated statements of operations from general and administrative expense to
the line items in which the related wages are reported to conform to the 1994
and 1993 presentation. The reclassifications had no effect on previously
reported operating income or loss or net earnings or loss.
37
<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 throughout the world
including Europe, Asia Pacific, and the Mideast.
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:
1994 $503,754 $(12,242) $491,512 $209,765 $1,015,923
1993 564,421 (494) 563,927 229,003 1,049,159
1992 451,817 (1,053) 450,764 155,542 915,106
Western Europe:
1994 $266,488 $(38,786) $227,702 $ 73,581 $ 121,200
1993 255,367 (30,163) 225,204 75,673 79,382
1992 241,484 (46,687) 194,797 60,218 80,075
Asia Pacific:
1994 $197,794 $(15,889) $181,905 $ 68,690 $ 32,074
1993 101,649 (12,449) 89,200 24,817 32,828
1992 140,681 (14,722) 125,959 54,653 18,510
Other Foreign:
1994 $ 20,718 $ (228) $ 20,490 $ 5,667 $ 12,682
1993 18,631 (2,105) 16,526 4,610 8,399
1992 27,792 (1,734) 26,058 11,025 7,573
Consolidated:
1994 $988,754 $(67,145) $921,609 $357,703 $1,181,879
1993 940,068 (45,211) 894,857 334,103 1,169,768
1992 861,774 (64,196) 797,578 281,438 1,021,264
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
</TABLE>
RECONCILIATION TO CONSOLIDATED STATEMENTS OF OPERATIONS:
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Consolidated operating profits $ 357,703 $ 334,103 $ 281,438
General corporate expenses (283,231) (246,308) (296,870)
Other income (expense), net 3,261 (3,352) (206)
---------------------------------------------------- --------- --------- ---------
Consolidated earnings (loss) before income taxes $ 77,733 $ 84,443 $ (15,638)
---------------------------------------------------- --------- --------- ---------
--------- --------- ---------
</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
$324,772,000 in 1994, $227,749,000 in 1993 and $237,017,000 in 1992.
Revenue from U.S. Government agencies or commercial customers primarily
serving the U.S. Government totalled approximately $333,887,000 in 1994,
$386,056,000 in 1993 and $248,832,000 in 1992.
Net assets of foreign subsidiaries included in the consolidated balance
sheets are $69,978,000 in 1994 and $54,239,000 in 1993.
38
<PAGE>
CONSOLIDATED BALANCE
SHEET DETAILS
<TABLE>
<CAPTION>
1994 1993
---------- ----------
(In thousands)
<S> <C> <C>
CASH AND INVESTMENTS:
Cash and commercial paper $ 119,794 $ 81,428
Certificates of deposit 26,825 7,540
Auction rate government securities 99,550 91,900
Government revenue bonds 2,000 18,653
Money market funds 4,613 21,921
Long-term equity investments 7,210 7,022
Other 2,761 6,931
------------------------------------------------------- ---------- ----------
Total cash and investments 262,753 235,395
Less long-term equity investments (7,210) (7,022)
------------------------------------------------------- ---------- ----------
Cash and long-term cash investments 255,543 228,373
Less long-term cash investments (200,000) (150,000)
------------------------------------------------------- ---------- ----------
Cash and equivalents $ 55,543 $ 78,373
------------------------------------------------------- ---------- ----------
---------- ----------
RECEIVABLES:
Trade $ 194,710 $ 157,669
Current portion of long-term receivables 10,486 11,184
Other 24,612 17,999
------------------------------------------------------- ---------- ----------
$ 229,808 $ 186,852
---------- ----------
---------- ----------
INVENTORIES:
Components and subassemblies $ 97,717 $ 89,421
Systems in process 74,940 148,772
Finished goods 34,839 76,907
------------------------------------------------------- ---------- ----------
$ 207,496 $ 315,100
---------- ----------
---------- ----------
LEASED SYSTEMS AND SPARES:
Leased systems and spares $ 320,276 $ 288,706
Less accumulated depreciation and amortization (210,069) (188,847)
------------------------------------------------------- ---------- ----------
$ 110,207 $ 99,859
---------- ----------
---------- ----------
PROPERTY, PLANT AND EQUIPMENT:
Land and improvements $ 23,199 $ 22,822
Buildings and improvements 166,318 158,364
Machinery and equipment 150,107 125,975
Data processing equipment 215,014 165,620
Office furniture and equipment 21,322 19,861
Construction in progress 9,307 5,369
------------------------------------------------------- ---------- ----------
585,267 498,011
Less accumulated depreciation and amortization (320,151) (272,362)
------------------------------------------------------- ---------- ----------
$ 265,116 $ 225,649
---------- ----------
---------- ----------
ACCRUED EXPENSES:
Employee compensation $ 57,279 $ 59,389
Accrued warranty costs 13,290 16,156
Current portion of capital lease obligation 6,919 -
Other 32,885 33,755
------------------------------------------------------- ---------- ----------
$ 110,373 $ 109,300
---------- ----------
---------- ----------
OTHER LONG-TERM OBLIGATIONS:
Capital lease obligation $ 8,874 $ -
University research and development grants payable 4,783 11,098
Other 4,373 1,888
------------------------------------------------------- ---------- ----------
$ 18,030 $ 12,986
---------- ----------
---------- ----------
</TABLE>
39
<PAGE>
LONG-TERM DEBT
<TABLE>
<CAPTION>
1994 1993
---------- ----------
(In thousands)
<S> <C> <C>
Convertible Subordinated Debentures, 6 1/8% $ 82,000 $105,000
Term Loan 20,000 -
Other 2,344 2,694
------------------------------------------------------- ---------- ----------
Total long-term debt 104,344 107,694
Less current installments (7,344) (2,216)
------------------------------------------------------- ---------- ----------
Long-term debt, excluding current installments $ 97,000 $105,478
------------------------------------------------------- ---------- ----------
---------- ----------
</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. 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. On April 8, 1994,
the Company repurchased a portion of the debentures with a face value of
$23,000,000 for a purchase price of $20,400,000. The repurchase resulted in a
gain of $2,600,000 which was recorded as other income. This repurchase satisfied
the first four required annual sinking fund payments of $5,750,000 originally
scheduled for the years 1997 to 2000. Remaining annual sinking fund payments of
$5,750,000 each are scheduled from 2001 to 2010 with a final maturity payment
of $24,500,000 in 2011.
To fund the debenture repurchase, the Company entered into a four year
$20,000,000 term loan agreement. The fixed borrowing rate is 6.72% and interest
payments are due semi-annually in arrears each year on October 8 and April 8.
Annual principal installments of $5,000,000 are due April 8, 1995 to
April 8, 1998.
The Company has an unused, unsecured $75,000,000 revolving credit
agreement. 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, 1994.
In addition, the Company's foreign subsidiaries had approximately
$20,640,000 of unused lines of credit at December 31, 1994.
Annual installments of long-term debt as of December 31, 1994, are as follows:
<TABLE>
<CAPTION>
Long-term debt
installments
--------------
Years ending December 31: (In thousands)
<S> <C>
1995 $ 7,344
1996 5,000
1997 5,000
1998 5,000
1999 -
Thereafter 82,000
----------
$104,344
----------
----------
</TABLE>
40
<PAGE>
FINANCIAL INSTRUMENTS
The Company has only limited involvement with derivative financial
instruments and does not use them for trading purposes. They are used to manage
well-defined foreign currency fluctuation risks: specific firm foreign exchange
commitments related to customer transactions and certain foreign subsidiary
investments. At December 31, 1994, and 1993, the Company had forward exchange
contracts outstanding as noted in the chart below.
<TABLE>
<CAPTION>
Forward exchange contract Contracts outstanding at December 31, 1994
------------------------------------------- ------------------------------------------------
Type Purpose Contract Value Market Value Maturity Dates
---------- ---------------------- -------------- ------------ --------------
<S> <C> <C> <C> <C>
Sell (net) Customer transaction $ 125,928,000 $128,786,000 1995-1997
Buy Subsidiary investment $ 20,240,000 $ 20,097,000 1995
</TABLE>
<TABLE>
<CAPTION>
Forward exchange contract Contracts outstanding at December 31, 1993
------------------------------------------ ------------------------------------------------
Type Purpose Contract Value Market Value Maturity Dates
---------- ---------------------- -------------- ------------ --------------
<S> <C> <C> <C> <C>
Sell (net) Customer transaction $ 144,468,000 $140,439,000 1994-1996
Buy Subsidiary investment $ 16,550,000 $ 16,627,000 1994
</TABLE>
Generally these forward contracts are placed at the time the Company signs
a foreign currency sale or lease contract with a customer, or when a foreign
subsidiary makes a U.S. dollar investment, and they mature at the time the
customer's payment is due or when the subsidiary investment matures. At the time
of recognition of the related equipment sale or lease revenue, the forward
exchange contract becomes the basis for recording revenue and the related
receivable from the customer. Accordingly, exchange gains and losses are
generally not material.
The market value of these contracts was determined by obtaining quotes from
financial institutions. The Company is subject to the remote 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 values of these debentures were $54,120,000
and $90,169,000 at December 31, 1994, and 1993, respectively. The carrying
values at December 31, 1994, and 1993 of all other financial instruments
approximate their market values.
A concentration of credit risk exists due to the significance of revenues
from U.S. Government customers. Current and long-term receivables include
amounts due from U.S. Government agencies (or commercial customers primarily
serving the U.S. Government) of $125,481,000 and $23,230,000 at December 31,
1994, and 1993, respectively. It is the Company's policy to collateralize sales
receivables by obtaining a security interest in the equipment sold.
41
<PAGE>
STOCK PLANS
At December 31, 1994, 6,250,000 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 6,358,000
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, 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
Authorized for issuance - - - 779,000
Options granted 18.75-33.00 804,683 - (804,683)
Stock grants - - - (10,885)
Became exercisable 22.00-47.63 - 799,012 -
Exercised 27.50-31.50 (45,151) (45,151) -
Canceled 26.50-47.63 (269,986) (187,310) 269,986
----------------------------- ------------- ---------- ----------- -----------
At December 31, 1994 $18.75-47.63 4,346,826 2,596,101 1,899,707
----------------------------- ------------- ---------- ----------- -----------
------------- ---------- ----------- -----------
</TABLE>
During 1992, options for 159,224 shares were exercised at prices ranging
from $30.88 to $43.00 per share.
42
<PAGE>
STOCK PLANS (CONTINUED)
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
181,072 shares at a per share price of $17.64 in 1994, 186,485 shares at a per
share price of $24.86 in 1993 and 188,339 shares at a per share price of $27.41
in 1992.
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
$12,611,000 in 1994, $18,258,000 in 1993 and $4,353,000 in 1992.
Participant elections resulted in the issuance of 93,350 shares of common
stock at a per share price of $12.43 in February 1995, 82,653 shares of common
stock at a per share price of $26.35 in February 1994 and 22,969 shares of
common stock at a per share price of $22.53 in February 1993. Cash awards
totalled $11,322,000, $15,876,000 and $3,824,000 for 1994, 1993 and 1992,
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
$9,973,000 in 1994, $9,714,000 in 1993 and $10,627,000 in 1992. 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. 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 payments for 1994 and 1993
totalled $2,005,000 and $4,031,000, respectively.
43
<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>
1994
Current $ (8,148) $ (2,151) $16,880 $ 6,581
Deferred 15,532 (1,798) 1,722 15,456
--------------------------------- ---------- ---------- ---------- ----------
Provision for income taxes $ 7,384 $ (3,949) $18,602 $ 22,037
--------------------------------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
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)
--------------------------------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
The provision for foreign income taxes is based upon foreign pretax
earnings of approximately $37,811,000 in 1994, $34,864,000 in 1993 and
$44,641,000 in 1992.
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
-----------------------------------
1994 1993 1992
----- ----- -----
<S> <C> <C> <C>
Expected Federal income tax rate 35.0% 35.0% 34.0%
Increase (reduction) attributed to:
State taxes, net of Federal tax benefit (3.2) 4.7 1.4
Impact of foreign subsidiaries subject to higher tax rates 4.4 1.1 (37.7)
Foreign tax credit (2.8) (0.8) 11.2
Research and development tax credit (5.0) (5.8) 15.1
FSC (foreign sales corporation) exempt income (4.3) (2.4) 20.7
Nondeductible amortization of intangible assets 1.7 1.7 (5.9)
Tax exempt interest income (1.1) (1.4) 1.6
Effect of tax credit limitations 3.8 (4.4) (35.8)
Other, net (0.1) 0.2 0.3
----------------------------------------------------------------- ----- ----- -----
Actual effective income tax rate 28.4% 27.9% 4.9%
----------------------------------------------------------------- ----- ----- -----
----- ----- -----
</TABLE>
44
<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
1994 1993 (benefit)
--------- -------- --------
(In thousands)
<S> <C> <C> <C>
Inventory valuation $ 34,179 $ 46,007 $ 11,828
Accrued compensation 9,962 10,626 664
Accrued cost of sales 1,789 5,492 3,703
University research and development grants 5,417 8,192 2,775
Depreciation 12,944 1,651 (11,293)
Other, net 1,419 3,621 2,202
-------------------------------------------------------------- --------- -------- --------
Total gross deferred income taxes 65,710 75,589 9,879
Valuation allowance (16,561) (10,984) 5,577
-------------------------------------------------------------- --------- -------- --------
Total net deferred income taxes 49,149 64,605 $ 15,456
--------
--------
Less current portion (30,861) (39,097)
-------------------------------------------------------------- --------- --------
Noncurrent deferred income taxes $ 18,288 $ 25,508
-------------------------------------------------------------- --------- --------
--------- --------
</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 1995 through
2034. Based on tax rates in effect on December 31, 1994, approximately
$100,000,000 of future taxable income is required prior to December 31, 2009 for
full realization of the net deferred tax asset. The Company believes that its
future taxable income will be sufficient for full realization of the net
deferred tax asset.
At December 31, 1994, there was a minimum tax credit carryforward of
approximately $1,102,000 for federal income tax purposes which has no expiration
date. For financial reporting purposes, there was a federal foreign tax credit
carryforward of approximately $5,188,000 which expires on December 31, 1999 and
a federal minimum tax credit carryforward of approximately $3,533,000 which has
no expiration date. For both tax and financial reporting purposes, there are
state research credit carryforwards of approximately $5,559,000 which expire on
December 31, 2009.
At December 31, 1994, there were approximately $62,642,000 of accumulated
undistributed earnings of subsidiaries outside the United States that are
considered to be reinvested indefinitely, subject to cash flow requirements. It
is not practicable to estimate the deferred tax liability related to such
undistributed 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 two agreements 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 first agreement, ARPA contributed $12,700,000 in funding support
over a three-year period ending in 1993. Under the second agreement, ARPA will
contribute $15,000,000 in funding support over a three-year period ending in
1996, with two one-year extension options for an additional $5,000,000 of
funding per option. 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 is based on the achievement of milestones
contained in the agreements. Based on these milestones, $5,000,000, $4,200,000
and $4,500,000 was earned in 1994, 1993 and 1992, respectively, and recorded as
a reduction of development and engineering expense.
45
<PAGE>
OTHER INCOME (EXPENSE), NET
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Interest income $10,360 $ 9,622 $11,114
Interest expense (8,967) (8,531) (9,336)
Other income (expense), net 1,868 (4,443) (1,984)
---------------------------------- ------- ------- -------
$ 3,261 $(3,352) $ (206)
------- ------- -------
------- ------- -------
</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.
At December 31, 1994 and 1993, leased equipment aggregated $94,053,000 and
$64,988,000, less accumulated depreciation of $40,313,000 and $34,128,000,
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, 1994 and 1993 is
summarized as follows:
<TABLE>
<CAPTION>
1994 1993
-------- --------
(In thousands)
<S> <C> <C>
Total minimum lease payments receivable $ 34,936 $ 24,300
Less unearned interest income (3,491) (2,523)
------------------------------------------------------ -------- --------
Net investment in sales-type leases 31,445 21,777
Less current portion included in current receivables (10,486) (11,184)
------------------------------------------------------ -------- --------
Long-term receivables, excluding current portion $ 20,959 $ 10,593
------------------------------------------------------ -------- --------
-------- --------
</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>
1995 $12,637 $14,681
1996 13,735 7,860
1997 7,688 2,177
1998 876 68
--------------------------------------------------- ---------- ---------
$34,936 $24,786
---------- ---------
---------- ---------
</TABLE>
46
<PAGE>
LEASING ARRANGEMENTS 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 identified in the
schedule below.
Total rent expense for all operating leases, including rents under lease
arrangements with terms of one year or less, aggregated $17,827,000 in 1994,
$21,409,000 in 1993 and $21,486,000 in 1992.
Substantially all operating leases provide that the Company pay taxes,
maintenance, insurance, and certain other operating expenses applicable to the
leased premises.
The Company also leases computer equipment under a capital lease. As of
December 31, 1994, this equipment had a cost of $12,573,000 and accumulated
depreciation of $1,279,000. The amortization of this asset is recorded to
depreciation expense. Future minimum lease payments under this capital lease are
identified in the schedule below.
<TABLE>
<CAPTION>
Operating Capital
leases leases
--------- -------
Years ending December 31: (In thousands)
<S> <C> <C>
1995 $ 12,559 $ 7,988
1996 8,692 7,963
1997 5,948 1,327
1998 4,043 -
1999 3,149 -
Thereafter 22,331 -
-------------------------------------------------- -------- -------
Total minimum lease payments $56,722 17,278
Less: Amount representing interest -------- (1,485)
-------- -------
Present value of net minimum lease payments $15,793
-------------------------------------------------- -------
-------
</TABLE>
RESTRUCTURING CHARGES
In 1994, the Company announced a restructuring program. Major components of
this restructuring were production process changes to substantially reduce
production times, a temporary idling of approximately 700 employees, and the
elimination of 270 regular and contract positions. These actions resulted in a
one-time charge of $8,296,000 to cost of sales in the fourth quarter 1994.
The 1992 consolidated statement of operations also includes a restructuring
charge of $42,833,000 detailed 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 AND GOODWILL
Product technology and goodwill represents the excess of the cost of a
purchased business over the fair value of the net assets acquired. Product
technology and goodwill is included in other assets and totals $10,068,000 and
$10,967,000 at December 31, 1994 and 1993, respectively, net of accumulated
amortization of $20,464,000 and $15,724,000 at each respective year end.
Net operating losses of purchased businesses of $14,900,000 prior to
acquisition are available to the Company, subject to limitations, to offset
federal taxable income through 2005. In 1994 and 1993, tax benefits realized
reduced the carrying value of product technology by $894,000 and $2,800,000
respectively.
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.
47
<PAGE>
ACQUISITIONS
In September 1994, the Company acquired all the outstanding capital stock
of Savant Systems, Incorporated for $4,250,000. The excess of the purchase price
over the fair value of the identifiable assets acquired was recorded as goodwill
totalling $3,841,000.
In October 1994, the Company acquired all of the capital stock of Minnesota
Supercomputer Center for $10,400,000 in cash, which approximated the fair value
of identifiable net assets acquired.
These acquisitions did not have a material impact on consolidated results
of operations during 1994.
SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- ----------
(In thousands)
<S> <C> <C> <C>
RECONCILIATION OF NET EARNINGS (LOSS) TO
CASH FLOWS PROVIDED BY OPERATIONS:
Net earnings (loss) $ 55,696 $ 60,855 $ (14,875)
Items which do not use (provide) operating
cash flow:
Depreciation and amortization 126,250 124,350 126,850
Other (13,363) 867 6,452
(Increase) decrease in operating assets:
Receivables (51,159) (29,423) 102,082
Inventories 107,604 (51,816) (18,760)
Other 9,122 (29,506) 5,560
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses (13,289) 36,219 2,488
Income taxes payable (23,413) 26,399 (28,419)
Deferred income and customer advances (14,939) 29,306 4,017
Other (2,230) 5,497 1,421
------------------------------------------------ ---------- ---------- ----------
Cash flows provided by operations $ 180,279 $ 172,748 $ 186,816
------------------------------------------------ ---------- ---------- ----------
---------- ---------- ----------
NONCASH INVESTING AND FINANCING ACTIVITIES:
Liabilities assumed in acquisition $ 17,924 $ - $ -
</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>
1994
Revenue $ 248,866 $ 215,818 $ 219,859 $ 237,066 $ 921,609
Gross profit 108,120 88,259 96,276 92,511 385,166
Net earnings 21,953 8,202 16,042 9,499 55,696
Earnings per common and
common equivalent share .84 .32 .62 .38 2.16
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
</TABLE>
48
<PAGE>
REPORT OF MANAGEMENT AND INDEPENDENT AUDITORS' REPORT
Cray Research, Inc. and Subsidiaries
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 LLP, 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.
Robert H. Ewald
President and Chief Operating Officer
Laurence L. Betterley
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, 1994 and 1993 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, 1994. 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, 1994 and 1993 and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1994, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
January 25, 1995
49
<PAGE>
INVESTOR INFORMATION
NOTICE OF ANNUAL MEETING
The annual meeting of stockholders will be held at
- The Minnesota Historical Society
345 Kellogg Boulevard West
St. Paul, Minnesota
beginning at 10:00 a.m. on Tuesday, May 16, 1995. A formal notice of the
meeting, together with proxy statement and proxy, will be mailed to stockholders
of record as of March 20, 1995.
STOCKHOLDER INQUIRIES
Communications concerning transfer requirements, change of address, and
lost certificates should be directed to the Transfer Agent.
- COMMON STOCK
Norwest Bank Minnesota, N.A.
161 North Concord Exchange
P.O. Box 738
South St. Paul, Minnesota 55075
1 (800) 468-9716
- 6 1/8% CONVERTIBLE SUBORDINATED
DEBENTURES DUE 2011
Chemical Bank
450 West 33rd Street
New York, New York 10001
1 (800) 648-8380
- FINANCIAL PUBLICATIONS
Investors seeking financial publications, or wishing to be placed on the
Company's mailing list of investors may call (612) 683-5777
Financial statements and other information about Cray Research are also
available electronically via the World-Wide Web at
http://www.cray.com
- GENERAL STOCKHOLDER AND INVESTOR QUESTIONS
The Company maintains an Investor Relations office to assist stockholders
and investors. Inquiries may be directed to:
Bradley D. Allen
Senior Director, Investor Relations
Cray Research, Inc.
655A Lone Oak Drive
Eagan, Minnesota 55121
(612) 683-7331
SECURITIES LISTING
The Company's common stock is listed on the New York Stock Exchange (pri-
mary listing) under the trading symbol CYR. The Boston, Philadelphia, Pacific,
and Midwest Exchanges have "unlisted trading privileges" (UTP).
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
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.
COMMON STOCK PRICES
The following chart sets forth, for the periods indicated, high, low, and
closing prices for the Company's common stock on the New York Stock Exchange.
STOCK PRICE RANGES AND CLOSE BY QUARTER
[GRAPH]
As of February 28, 1995, there were approximately 5,642 record holders of
the Company's common stock.
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.
52
<PAGE>
EXHIBIT 21
CRAY RESEARCH, INC. AND SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT
The following are the Company's significant subsidiaries as of December 31,
1994. 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
Research Equipment, Inc. dba Minnesota Supercomputer Center, Inc.................. Minnesota
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 23
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; 33-62414 and 33-55361) of Cray Research,
Inc. of our report dated January 25, 1995, relating to the consolidated balance
sheets of Cray Research, Inc. and subsidiaries as of December 31, 1994 and 1993
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, 1994, which report is incorporated by reference in the December 31,
1994 Annual Report on Form 10-K of Cray Research, Inc.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
March 28, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
CONSOLIDATED STATEMENTS OF OPERATIONS AND THE CONSOLIDATED BALANCE SHEETS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<S> <C>
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0
0
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</TABLE>
