<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported):
February 29, 1996
--------------------
CRAY RESEARCH, INC.
(Exact name of registrant as specified in its charter)
Delaware 1-8028 39-1161138
(State of (Commission File (I.R.S. Employer
incorporation) Number) Identification
Number)
655A Lone Oak Drive
Eagan, MN 55121
(Address of principal executive offices)
(612) 452-6650
(Registrant's telephone number)
<PAGE>
Item 5. Other Events.
Included in Item 7 hereof are the audited consolidated statements of the
Registrant as of December 31, 1995 and 1994 and for the three years ended
December 31, 1995.
<PAGE>
Item 7. Financial Statements and Exhibits.
(A) Financial Statements
Consolidated Statements of Operations for the years ended December 31,
1995, 1994, and 1993.
Consolidated Balance Sheets as of December 31, 1995 and 1994.
Consolidated Statements of Cash Flows for the years ended December 31,
1995, 1994, and 1993.
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1995, 1994, and 1993.
Summary of Significant Accounting Policies.
Notes to Consolidated Financial Statements.
Independent Auditors' Report.
(C) Exhibits
(23) Independent Auditors' Consent.
(27) Financial Data Schedule.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CRAY RESEARCH, INC.
By: /s/ J. PHILLIP SAMPER
-------------------------
J. Phillip Samper
Chief Executive 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)
Date: February 29, 1996
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
Cray Research, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Years ended December 31
-------------------------------------
1995 1994 1993
--------- --------- ---------
(In thousands, except per share data)
<S> <C> <C> <C>
Revenue:
Sales and lease $ 468,315 $ 727,725 $699,143
Service fees 207,929 193,884 195,714
- ----------------------------------------- --------- --------- ---------
Total revenue 676,244 921,609 894,857
- ----------------------------------------- --------- --------- ---------
Cost of revenue:
Cost of sales and lease 289,158 376,740 356,809
Cost of services 147,411 151,407 146,937
- ----------------------------------------- --------- --------- ---------
Total cost of revenue 436,569 528,147 503,746
- ----------------------------------------- --------- --------- ---------
Gross profit 239,675 393,462 391,111
- ----------------------------------------- --------- --------- ---------
Operating expenses:
Development and engineering 122,965 140,632 145,700
Sales, marketing & general & administrative 167,259 170,062 157,616
Restructure and one-time charges 187,670 8,296 -
- ----------------------------------------- --------- --------- ---------
Total operating expenses 477,894 318,990 303,316
- ----------------------------------------- --------- --------- ---------
Operating income (loss) (238,219) 74,472 87,795
Other income (expense), net 2,423 3,261 (3,352)
- ----------------------------------------- --------- --------- ---------
Earnings (loss) before income taxes (235,796) 77,733 84,443
Income tax (expense) benefit 9,432 (22,037) (23,588)
- ----------------------------------------- --------- --------- ---------
Net earnings (loss) $(226,364) $ 55,696 $ 60,855
- ----------------------------------------- ========= ========= =========
Earnings (loss) per common and
common equivalent share $ (8.95) $ 2.16 $ 2.33
- ----------------------------------------- ========= ========= =========
Average number of common and
common equivalent shares outstanding 25,282 25,845 26,118
- ----------------------------------------- ========= ========= =========
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
<PAGE>
CONSOLIDATED BALANCE SHEETS
Cray Research, Inc. and Subsidiaries
<TABLE>
<CAPTION>
December 31
-------------------------
1995 1994
---------- ----------
(In thousands)
<S> <C> <C>
Assets
================================================
Current assets:
Cash and equivalents $ 104,425 $ 55,543
Receivables 156,039 229,808
Inventories 177,359 207,496
Other current assets 60,082 41,191
- ------------------------------------------------ ---------- ----------
Total current assets 497,905 534,038
Long-term receivables 22,165 20,959
Leased systems and spares, net 69,671 110,207
Property, plant and equipment, net 200,875 265,116
Investments and other assets 187,438 251,559
- ------------------------------------------------- ---------- ----------
$ 978,054 $ 1,181,879
========== ==========
Liabilities and Stockholders' Equity
================================================
Current liabilities:
Current installments of long-term debt $ 5,679 $ 7,344
Accounts payable 42,924 37,999
Accrued expenses 99,314 110,373
Income taxes payable - 7,009
Deferred income and customer advances 124,255 75,214
- ------------------------------------------------- ---------- ----------
Total current liabilities 272,172 237,939
- ------------------------------------------------- ---------- ----------
Long-term debt, excluding current installments 92,682 97,000
Other long-term obligations 10,772 18,030
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 70,697 91,973
Retained earnings 696,196 922,560
Foreign currency translation adjustments 5,773 2,774
Unearned compensation-restricted stock (5,339) -
Treasury stock, at cost; 5,987,000 and
6,041,000 shares (196,410) (219,908)
- ------------------------------------------------- ---------- ----------
Total stockholders' equity 602,428 828,910
- ------------------------------------------------- ---------- ----------
$ 978,054 $1,181,879
========== ==========
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cray Research, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Years ended December 31
-----------------------------------
1995 1994 1993
---------- ---------- ----------
(In thousands)
<S> <C> <C> <C>
Cash flows provided by (used in) operations:
Receipts from customers $ 777,624 $ 863,842 $ 885,111
Payments to suppliers and employees (668,520) (656,560) (698,006)
Income taxes paid (8,411) (28,393) (14,830)
Interest received 12,194 10,799 9,046
Interest paid (9,015) (8,529) (9,171)
Other, net (10,071) (880) 598
- ------------------------------------------ --------- --------- ---------
Total cash flows provided by operations 93,801 180,279 172,748
- ------------------------------------------ --------- --------- ---------
Cash flows provided by (used in) investing:
Expenditures for property,
plant and equipment (49,164) (87,266) (45,691)
Expenditures for leased systems and spares (32,887) (55,003) (46,991)
Transfers (to) from long-term investments 50,000 (50,000) (50,000)
Other, net (5,503) (1,502) 2,120
- ------------------------------------------ --------- --------- ---------
Total cash flows used in investing (37,554) (193,771) (140,562)
- ------------------------------------------ --------- --------- ---------
Cash flows provided by (used in) financing:
Proceeds from borrowings 16,827 22,183 5,554
Proceeds from purchases of common stock
by employees 8,050 7,311 5,564
Repayments of debt (23,518) (23,019) (10,208)
Repurchases of common stock (11,282) (19,407) (7,633)
- ------------------------------------------ --------- --------- ---------
Total cash flows used in financing (9,923) (12,932) (6,723)
- ------------------------------------------ --------- --------- ---------
Effect of exchange rate changes on cash 2,558 3,594 (2,043)
- ------------------------------------------ --------- --------- ---------
Increase (decrease) in cash and equivalents 48,882 (22,830) 23,420
Cash and equivalents at beginning of year 55,543 78,373 54,953
- ------------------------------------------ --------- --------- ---------
Cash and equivalents at end of year $104,425 $ 55,543 $ 78,373
- ------------------------------------------ ========= ========= =========
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Cray Research, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Foreign Unearned
Additional currency compensation
Common paid-in Retained translation restricted Treasury
stock capital earnings adjustments stock stock
------- --------- -------- ---------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at
December
31, 1992 $31,511 $109,322 $806,009 $(429) - $(223,352)
Stock plans - (6,922) - - - 12,486
Income tax
benefit from
stock plans - 89 - - - -
Translation
adjustments - - - (2,595) - -
Repurchases of
common stock - - - - - (7,633)
Net earnings - - 60,855 - - -
- ----------- ------- ------- ------- -------- ------- --------
Balance at
December
31, 1993 31,511 102,489 866,864 (3,024) - (218,499)
Stock plans - (10,687) - - - 17,998
Income tax
benefit from
stock plans - 171 - - - -
Translation
adjustments - - - 5,798 - -
Repurchases of
common stock - - - - - (19,407)
Net earnings - - 55,696 - - -
- ----------- ------ ------- -------- ------- ------- --------
Balance at
December
31, 1994 31,511 91,973 922,560 2,774 - (219,908)
Stock plans - (21,389) - - $(5,339) 34,780
Income tax
benefit from
stock plans - 113 - - - -
Translation
adjustments - - - 2,999 - -
Repurchases of
common stock - - - - - (11,282)
Net loss - - (226,364) - - -
- ----------- ------ ------ -------- ------- ------- ---------
Balance at
December
31, 1995 $31,511 $ 70,697 $696,196 $ 5,773 $(5,339) $(196,410)
====== ====== ======== ======= ======= =========
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Cray Research, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Common Treasury
stock stock
shares shares
------- ---------
(In thousands)
<S> <C> <C>
Balance at
December
31, 1992 31,511 5,464
Stock plans - (221)
Income tax
benefit from
stock plans - -
Translation
adjustments - -
Repurchases of
common stock - 288
Net earnings - -
- ----------- ------- -------
Balance at
December
31, 1993 31,511 5,531
Stock plans - (319)
Income tax
benefit from
stock plans - -
Translation
adjustments - -
Repurchases of
common stock - 829
Net earnings - -
- ----------- ------- -------
Balance at
December
31, 1994 31,511 6,041
Stock plans - (716)
Income tax
benefit from
stock plans - -
Translation
adjustments - -
Repurchases of
common stock - 662
Net loss - -
- ----------- ------- -------
Balance at
December
31, 1995 31,511 5,987
======= =======
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
<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 December 31 in 1995, and November 30
in 1994 and 1993. The change in fiscal year for
the foreign subsidiaries in 1995 did not have a material impact on the results
of operations in 1995.
SOURCES OF SUPPLY
The Company currently buys certain components which are important in the
manufacture of its products, from a limited number, and, in some cases, from a
single supplier. Although there are a limited number of manufacturers of these
components, management believes that other suppliers could provide similar
components on comparable terms. A change in suppliers, however, could cause a
delay in manufacturing and a possible loss of sales, which could adversely
affect operating results.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues during the reporting period. Actual results
could differ from those estimates.
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.
<PAGE>
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.
<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 ten 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
<PAGE>
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.
RECLASSIFICATION
Restructuring and one-time charges expense has been reclassified in the 1994
consolidated statements of operations from cost of sales to a separate line item
to conform to the 1995 presentation. The reclassification had no effect on
previously reported operating income (loss) or net earnings (loss).
<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:
1995 $338,690 $(46,922) $291,768 $ 32,236 $ 803,610
1994 503,754 (12,242) 491,512 209,765 1,015,923
1993 564,421 (494) 563,927 229,003 1,049,159
WESTERN EUROPE:
1995 $257,809 $(36,784) $221,025 $ 47,672 $ 126,039
1994 266,488 (38,786) 227,702 73,581 121,200
1993 255,367 (30,163) 225,204 75,673 79,382
ASIA PACIFIC:
1995 $158,406 $(14,961) $143,445 $ 38,276 $ 41,491
1994 197,794 (15,889) 181,905 68,690 32,074
1993 101,649 (12,449) 89,200 24,817 32,828
OTHER FOREIGN:
1995 $ 21,548 $ (1,542) $ 20,006 $ 4,207 $ 6,914
1994 20,718 (228) 20,490 5,667 12,682
1993 18,631 (2,105) 16,526 4,610 8,399
CONSOLIDATED:
1995 $776,453 $(100,209) $676,244 $122,391 $ 978,054
1994 988,754 (67,145) 921,609 357,703 1,181,879
1993 940,068 (45,211) 894,857 334,103 1,169,768
=============================================================================
</TABLE>
<PAGE>
RECONCILIATION TO CONSOLIDATED STATEMENTS OF OPERATIONS:
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C>
Consolidated operating profits $ 122,391 $ 357,703 $ 334,103
General corporate expenses (360,610) (283,231) (246,308)
Other income (expense), net 2,423 3,261 (3,352)
- ----------------------------------- --------- --------- ---------
Consolidated earnings (loss)
before income taxes $(235,796) $ 77,733 $ 84,443
- ----------------------------------- ========= ========= =========
</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
$218,250,000 in 1995, $324,772,000 in 1994 and $227,749,000 in 1993.
Revenue from U.S. Government agencies or commercial customers primarily serving
the U.S. Government totalled approximately $109,901,000 in 1995, $333,887,000 in
1994 and $386,056,000 in 1993.
Net assets of foreign subsidiaries included in the consolidated balance sheets
are $93,086,000 in 1995 and $69,978,000 in 1994.
CONSOLIDATED BALANCE SHEET DETAILS
<TABLE>
<CAPTION>
1995 1994
-------- --------
(In thousands)
<S> <C> <C>
CASH AND INVESTMENTS:
Cash and commercial paper $127,343 $119,794
Certificates of deposit 24,047 26,825
Auction rate government securities 52,150 99,550
Government revenue bonds 32,361 2,000
Money market funds 18,524 4,613
Long-term equity investments 8,681 7,210
Other - 2,761
- ------------------------------------------- -------- --------
Total cash and investments 263,106 262,753
Less long-term equity investments (8,681) (7,210)
- ------------------------------------------- -------- --------
Cash and long-term cash investments 254,425 255,543
Less long-term cash investments (150,000) (200,000)
- ------------------------------------------- -------- --------
Cash and equivalents $104,425 $ 55,543
- ------------------------------------------- ======== ========
RECEIVABLES:
Trade $113,646 $194,710
Current portion of long-term receivables 10,289 10,486
Other 32,104 24,612
- ------------------------------------------- -------- --------
$156,039 $ 229,808
======== ========
</TABLE>
<PAGE>
<TABLE>
1995 1994
-------- ---------
(In thousands)
<S> <C> <C>
INVENTORIES:
Components and subassemblies $ 90,891 $ 97,717
Systems in process 47,403 74,940
Finished goods 39,065 34,839
- ------------------------------------------ --------- --------
$ 177,359 $ 207,496
========= ========
LEASED SYSTEMS AND SPARES:
Leased systems and spares $ 296,659 $ 320,276
Less accumulated depreciation
and amortization (226,988) (210,069)
- ------------------------------------------ --------- --------
$ 69,671 $ 110,207
========= =========
PROPERTY, PLANT AND EQUIPMENT:
Land and improvements $ 22,916 $ 23,199
Buildings and improvements 161,128 166,318
Machinery and equipment 136,452 150,107
Data processing equipment 203,370 215,014
Office furniture and equipment 22,432 21,322
Construction in progress 5,313 9,307
- ------------------------------------------ --------- --------
551,611 585,267
Less accumulated depreciation
and amortization (350,736) (320,151)
- ------------------------------------------ --------- --------
$ 200,875 $ 265,116
========= =========
ACCRUED EXPENSES:
Employee compensation $ 41,168 $ 57,279
Accrued warranty costs 8,162 13,290
Accrued restructure costs 13,780 -
Current portion of capital lease obligations 7,567 6,919
Other 28,637 32,885
- ------------------------------------------ --------- --------
$ 99,314 $ 110,373
========= =========
OTHER LONG-TERM OBLIGATIONS:
Retiree medical benefits $ 6,941 $ 4,092
Capital lease obligations 1,359 8,874
University research and development
grants payable 2,189 4,783
Other 283 281
- ------------------------------------------ --------- --------
$ 10,772 $ 18,030
========= =========
</TABLE>
<PAGE>
LONG-TERM DEBT
<TABLE>
<CAPTION>
1995 1994
-------- --------
(In thousands)
<S> <C> <C>
Convertible Subordinated Debentures, 6 1/8% $82,000 $ 82,000
Term loan 15,000 20,000
Other 1,361 2,344
- ------------------------------------------ ------- --------
Total long-term debt 98,361 104,344
Less current installments (5,679) (7,344)
- ------------------------------------------ ------- --------
Long-term debt, excluding
current installments $92,682 $ 97,000
- ------------------------------------------ ======= ========
</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. In April 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 in October and April. The
first annual principal installment of $5,000,000 was paid in April 1995. Annual
principal installments of $5,000,000 are due April, 1996 to April 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, 1995.
In addition, the Company's foreign subsidiaries had approximately $23,472,000 of
unused lines of credit at December 31, 1995.
Annual installments of long-term debt as of December 31, 1995, are as follows:
<TABLE>
<CAPTION>
Long-term debt
installments
--------------
(In thousands)
<S> <C>
Years ending December 31:
1996 $ 5,679
1997 5,682
1998 5,000
1999 -
2000 -
Thereafter 82,000
-------
$98,361
=======
</TABLE>
<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, 1995, and 1994, the Company had forward exchange contracts
outstanding as noted in the chart below.
<TABLE>
<CAPTION>
Forward exchange contract Contracts outstanding at December 31, 1995
- --------------------------------- -------------------------------------------
Type Purpose Contract Value Market Value Maturity Dates
- ---------- ---------------------- -------------- ------------ --------------
<C> <S> <C> <C> <C>
Sell (net) Customer transaction $163,752,000 $167,967,000 1996-1999
Buy Subsidiary investment $ 38,100,000 $ 38,116,000 1996
<CAPTION>
Forward exchange contract Contracts outstanding at December 31, 1994
- --------------------------------- -------------------------------------------
Type Purpose Contract Value Market Value Maturity Dates
- ---------- ---------------------- -------------- ------------ --------------
Sell (net) Customer transaction $125,928,000 $128,786,000 1995-1997
Buy Subsidiary investment $ 20,240,000 $ 20,097,000 1995
</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 $65,526,000 and
$54,120,000 at December 31, 1995, and 1994, respectively. The carrying values at
December 31, 1995, and 1994 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 $58,500,000 and $125,481,000 at December 31, 1995, and 1994,
respectively. It is the Company's policy to collateralize sales receivables by
obtaining a security interest in the equipment sold.
<PAGE>
STOCK PLANS
At December 31, 1995, 6,720,000 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 7,122,000 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, which may or may not have accompanying
restrictions. In 1995, many of the stock grants issued were subject to
restrictions. 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, 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
Authorized for issuance - - - 764,000
Options granted 14.75-26.88 1,401,139 - (1,401,139)
Stock grants - - - (461,602)
Became exercisable 22.00-47.63 - 713,719 -
Exercised 14.75-14.75 (4,500) (4,500) -
Canceled 14.75-47.63 (864,086) (562,020) 864,086
- ------------------------- ------------ ---------- --------- ----------
At December 31, 1995 $14.75-47.63 4,879,379 2,743,300 1,665,052
============ ========== ========= ==========
</TABLE>
During 1993, no options were exercised.
<PAGE>
EMPLOYEE STOCK PURCHASE PLAN
The Company has a Qualified Stock Purchase Investment Plan under which a maximum
of 2,200,000 shares of common stock are available for sale to employees. Under
this plan, eligible employees may designate from 2 to 15 percent of their
compensation to be withheld through payroll deductions for the purchase of
common stock at 85% of the lower of the market price on the first or the last
day of the offering period. Participant elections resulted in the issuance of
262,406 shares at a per share price of $17.74 in 1995, 181,072 shares at a per
share price of $17.64 in 1994 and 186,485 shares at a per share price of $24.86
in 1993.
ANNUAL INCENTIVE AWARD PLAN
Prior to 1995 the Company had 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 were
payable at year-end in cash or, at the employee's election, up to 50% may have
been 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 and $18,258,000 in 1993.
Participant elections resulted in the issuance of 93,350 shares of common stock
at a per share price of $12.43 in February 1995 and 82,653 shares of common
stock at a per share price of $26.35 in February 1994. Cash awards totalled
$11,322,000 and $15,876,000 for 1994 and 1993, respectively.
PERFORMANCE INCENTIVE PLAN
In 1995, the Company implemented its Performance Incentive Plan which provides
for incentive awards to employees based upon the achievement of individual and
stated Company financial and technical objectives. This plan replaces both the
Annual Incentive Award Plan and the Incentive Cash Profit Sharing Plan. Awards
are payable in cash or, at the election of certain specific groups of employees,
up to 50 percent may be received in common stock of the Company (up to an
aggregate maximum of 500,000 newly issued or repurchased shares) at 85 percent
of its fair market value. Based upon the Company not achieving the minimum
performance objective stated for 1995, no award payments were made in 1995.
DEFERRED COMPENSATION PLAN
During 1995, the Company adopted a Deferred Compensation Plan which allows
senior level employees an election to make pre-tax investments of cash
compensation and accumulate tax-deferred earnings. Under this plan, eligible
employees may defer a portion of salary, commissions, or incentive compensation
and the Company matches deferrals by contributing $.50 for each $1.00 deferred
up to 6% of cash compensation. Employee contributions are always 100% vested
and Company matching contributions vest over a 7 year period. The plan is
effective beginning January 1, 1996 based on employee elections made in
December 1995.
PROFIT SHARING PROGRAM
The Company's profit sharing program consists of, for domestic employees,
contributions to a defined contribution Retirement Savings Plus Plan that
<PAGE>
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 $9,466,000
in 1995, $9,973,000 in 1994 and $9,714,000 in 1993. Employees of the Company's
foreign subsidiaries participate in other retirement plans.
Prior to 1995, the Company had an Incentive Cash Profit Sharing Plan for all
employees. Payments under the plan were based on achieving operating income
targets. The payments for 1994 and 1993 totalled $2,005,000 and $4,031,000,
respectively. In 1995, the Incentive Cash Profit Sharing Plan was replaced by
the Performance Incentive Plan, which is described under "Stock Plans".
INCOME TAXES
Components of income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
Federal State Foreign Total
--------- --------- ------- --------
(In thousands)
<S> <C> <C> <C> <C>
1995
Current $(22,067) $ 629 $11,653 $ (9,785)
Deferred - - 353 353
- --------------------------- -------- -------- ------- --------
Provision for income taxes $(22,067) $ 629 $12,006 $ (9,432)
- --------------------------- ======== ======== ======= ========
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
- --------------------------- ======== ======== ======= ========
</TABLE>
The provision for foreign income taxes is based upon foreign pretax earnings of
approximately $29,343,000 in 1995, $37,811,000 in 1994 and $34,864,000 in 1993.
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:
<PAGE>
<TABLE>
<CAPTION>
Percentage of pretax
earnings or loss
----------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Expected Federal income tax rate (35.0)% 35.0% 35.0%
Increase (reduction) attributed to:
State taxes, net of Federal tax benefit 0.2 (3.2) 4.7
Impact of foreign subsidiaries subject
to higher tax rates 0.3 4.4 1.1
Foreign tax credit (0.1) (2.8) (0.8)
Research and development tax credit (0.8) (5.0) (5.8)
FSC (foreign sales corporation)
exempt income (0.5) (4.3) (2.4)
Nondeductible amortization of
intangible assets 0.6 1.7 1.7
Tax exempt interest income (0.4) (1.1) (1.4)
Valuation allowance 31.5 3.8 (4.4)
Other, net 0.2 (0.1) 0.2
- ------------------------------------------- ------ ------ ------
Actual effective income tax rate (4.0)% 28.4% 27.9%
- ------------------------------------------- ====== ====== ======
</TABLE>
Components of and changes in the net deferred income tax asset are as follows:
<TABLE>
<CAPTION>
Deferred tax
asset (liability) Deferred
-------------------- expense
1995 1994 (benefit)
-------- -------- ---------
(In thousands)
<S> <C> <C> <C>
Inventory valuation $ 38,153 $ 34,179 $ (3,974)
Accrued compensation 5,488 9,962 4,474
Accrued cost of sales 610 1,789 1,179
University research and
development grants 4,491 5,417 926
Depreciation 8,798 12,944 4,146
Restructuring 49,236 - (49,236)
Net operating loss carryforward 8,764 - (8,764)
Credit carryforwards 32,073 - (32,073)
Other, net 816 1,419 603
- ------------------------------------ ------- -------- --------
Total gross deferred income taxes 148,429 65,710 (82,719)
Valuation allowance (98,928) (16,561) 82,367
- ------------------------------------ ------- -------- --------
Total net deferred income taxes 49,501 49,149 $ (352)
Less current portion (38,275) (30,861) ========
- ------------------------------------ -------- --------
Noncurrent deferred income taxes $ 11,226 $ 18,288
- ------------------------------------ ======== ========
</TABLE>
<PAGE>
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 that reverse in the years 1996 through 2035.
Based on tax rates in effect on December 31, 1995, approximately $124,000,000 of
future taxable income is required prior to December 31, 2010 for full
realization of the net deferred tax asset. Although realization is not assured,
management believes it is more likely than not that all of the net deferred tax
asset will be realized.
At December 31, 1995, there was a net operating loss carryforward of
approximately $22,707,000 for federal income tax purposes which expires on
December 31, 2010. For tax purposes, there was a federal foreign tax credit
carryforward of approximately $26,965,000 which begins expiring on December 31,
1998, federal research credit carryforwards of approximately $2,000,000 which
expire on December 31, 2010, and a federal minimum tax credit carryforward of
approximately $3,108,000 which has no expiration date. For tax purposes, there
are state research credit carryforwards of approximately $7,000,000 which expire
on December 31, 2010.
At December 31, 1995, there were approximately $79,476,000 of accumulated
undistributed earnings of subsidiaries outside the United States. These
earnings, which reflect full provision for non-U.S. income taxes, are
indefinitely reinvested in non-U.S. operations or will be remitted substantially
free of additional tax. Accordingly, no material provision has been made for
taxes that might be payable upon remittance of such earnings nor is it
practicable to determine the amount of this liability.
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, $5,000,000
and $4,200,000 was earned in 1995, 1994 and 1993, respectively, and recorded as
a reduction of development and engineering expense.
<PAGE>
OTHER INCOME (EXPENSE), NET
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Interest income $12,568 $10,360 $ 9,622
Interest expense (8,944) (8,967) (8,531)
Other income (expense), net (1,201) 1,868 (4,443)
- ------------------------------------- ------- ------- -------
$ 2,423 $ 3,261 $(3,352)
======= ======= =======
</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, 1995 and 1994, leased equipment aggregated $66,301,000 and
$94,053,000, less accumulated depreciation of $30,961,000 and $40,313,000,
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, 1995 and 1994 is
summarized as follows:
<TABLE>
<CAPTION>
1995 1994
-------- --------
(In thousands)
<S> <C> <C>
Total minimum lease payments receivable $ 36,418 $ 34,936
Less unearned interest income (3,964) (3,491)
- ---------------------------------------------------- -------- --------
Net investment in sales-type leases 32,454 31,445
Less current portion included in current receivables (10,289) (10,486)
- ---------------------------------------------------- -------- --------
Long-term receivables, excluding current portion $ 22,165 $ 20,959
- ---------------------------------------------------- ======== ========
</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
---------- ----------
(In thousands)
<S> <C> <C>
Years ending December 31:
1996 $ 11,903 $ 15,346
1997 16,901 5,797
1998 6,777 1,882
1999 837 -
- ---------------------------------------------------- -------- --------
$ 36,418 $ 23,025
======== ========
</TABLE>
<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 $ 19,653,000 in 1995,
$17,827,000 in 1994, and $21,409,000 in 1993.
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 equipment under capital leases (primarily
computer equipment). As of December 31, 1995, this equipment had a cost of
$12,666,000 and accumulated depreciation of $6,402,000. The amortization of
these assets is recorded to depreciation expense. Future minimum lease payments
under capital leases are identified in the schedule below.
<TABLE>
<CAPTION>
Operating Capital
leases leases
--------- ---------
(In thousands)
<S> <C> <C>
Years ending December 31:
1996 $12,603 $ 7,984
1997 9,429 1,349
1998 5,648 21
1999 3,775 3
2000 2,362 -
Thereafter 18,500 -
- --------------------------------------------- ------- -------
Total minimum lease payments $52,317 9,357
=======
Less amount representing interest (426)
-------
Present value of net minimum lease payments $ 8,931
- --------------------------------------------- =======
</TABLE>
RESTRUCTURE AND ONE-TIME CHARGES
During 1995, the Company made operational changes intended to better align its
resources with its evolving strategy, improve its efficiency, and achieve a
more competitive cost structure. The Company recorded pre-tax restructure and
one-time charges totalling $187,670,000 related to reserves for excess
inventories compared to anticipated future demands ($82,703,000), reserves for
adjustments to net book value of equipment ($42,122,000), charges related to
excess capacity in facilities, primarily a manufacturing and development
facility ($21,134,000), costs related to staff reductions ($27,816,000), and
other miscellaneous charges ($13,895,000).
The following table summarizes the changes in the Company's restructure
reserves for 1995 (in thousands):
<PAGE>
<TABLE>
<S> <C>
Restructure reserves at December 31, 1994 $ 0
Restructure and one-time charges 187,670,000
Payments and asset write-downs (173,890,000)
-------------
Restructure reserves at December 31, 1995 $ 13,780,000
=============
</TABLE>
The restructure and one-time charges included a $15,600,000 asset impairment
charge recorded in accordance with Statement of Financial Accounting Standards
(SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of". This charge was recorded as a result of
excess capacity in a manufacturing and development facility and related
equipment due to decreases in demand and changes in the balance of sourcing
parts internally versus externally. The impairment loss was computed as the
excess of current net book value of the facility and equipment over its fair
value. Fair value was computed as the present value of estimated expected
future cash flows.
The restructure reserves at December 31, 1995 represent primarily severance
accruals for terminated employees. It is expected that most of these severance
payments will be made during first quarter 1996.
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 $5,297,000 and $9,430,000 at
December 31, 1995 and 1994, respectively, net of accumulated amortization of
$24,597,000 and $20,464,000 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, tax benefits realized reduced the carrying value
of product technology by $894,000.
LEGAL PROCEEDINGS
There are no legal proceedings pending against or involving the Company which,
in the opinion of management, will have a material adverse effect upon
consolidated results of operations or financial position.
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.
<PAGE>
<TABLE>
<CAPTION>
SUPPLEMENTAL CASH FLOW INFORMATION 1995 1994 1993
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
RECONCILIATION OF NET EARNINGS (LOSS) TO
CASH FLOWS PROVIDED BY OPERATIONS:
Net earnings (loss) $(226,364) $ 55,696 $ 60,855
Items which do not use (provide) operating
cash flow:
Depreciation and amortization 139,138 126,250 124,350
Other 59,794 (13,363) 867
(Increase) decrease in operating assets:
Receivables 72,563 (51,159) (29,423)
Inventories 30,137 107,604 (51,816)
Other 515 9,122 (29,506)
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses (6,782) (13,289) 36,219
Income taxes payable (17,631) (23,413) 26,399
Deferred income and customer advances 49,042 (14,939) 29,306
Other (6,611) (2,230) 5,497
- --------------------------------------------- -------- -------- --------
Cash flows provided by operations $ 93,801 $180,279 $172,748
- --------------------------------------------- ======== ======== ========
NONCASH INVESTING AND FINANCING ACTIVITIES:
Liabilities assumed in acquisition $ - $17,924 $ -
</TABLE>
SUBSEQUENT EVENTS (Unaudited)
In February 1996, the Company entered into an agreement to sell its primary
printed circuit board manufacturing facility in Chippewa Falls, Wisconsin for
approximately $36,000,000. The sale is expected to close in March 1996, at
which time a supply agreement with the buyer goes into effect.
In February 1996, the Company and Silicon Graphics Incorporated (SGI) announced
a merger agreement. Under this agreement, SGI will make a friendly tender offer
to acquire the Company. If the tender offer is successful, SGI will acquire all
of the outstanding shares of the Company, through a combination of cash
purchases and stock swaps.
<PAGE>
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>
1995
Revenue $131,063 $139,734 $169,178 $236,269 $676,244
Gross profit 46,823 43,101 57,786 91,965 239,675
Net earnings (loss) (48,292) (138,907) (13,536) (25,629) (226,364)
Earnings (loss) per common and
common equivalent share (1.90) (5.51) (.54) (1.00) (8.95)
1994
Revenue $248,866 $215,818 $219,859 $237,066 $921,609
Gross profit 108,120 88,259 96,276 100,807 393,462
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
</TABLE>
<PAGE>
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, 1995 and 1994 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, 1995. 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, 1995 and 1994 and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
January 24, 1996
<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; 33-55361;
33-58451; 33-58453 and 33-64483) of Cray Research, Inc. of our report dated
January 24, 1996 relating to the consolidated balance sheets of Cray Research,
Inc. and subsidiaries as of December 31, 1995 and 1994 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, 1995, which report
is included in this Form 8-K Current Report filed by Cray Research, Inc. on
February 29, 1996.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
February 29, 1996
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONLSOLIDATED STATEMENTS OF OPERATIONS AND THE CONSOLIDATED BALANCE SHEETS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 104,425
<SECURITIES> 150,000
<RECEIVABLES> 128,981
<ALLOWANCES> 0
<INVENTORY> 177,359
<CURRENT-ASSETS> 497,905
<PP&E> 551,611
<DEPRECIATION> 350,736
<TOTAL-ASSETS> 978,054
<CURRENT-LIABILITIES> 272,172
<BONDS> 92,682
0
0
<COMMON> 31,511
<OTHER-SE> 570,917
<TOTAL-LIABILITY-AND-EQUITY> 978,054
<SALES> 468,315
<TOTAL-REVENUES> 676,244
<CGS> 289,158
<TOTAL-COSTS> 436,569
<OTHER-EXPENSES> 122,965
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,944
<INCOME-PRETAX> (235,796)
<INCOME-TAX> (9,432)
<INCOME-CONTINUING> (226,364)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (226,364)
<EPS-PRIMARY> (8.95)
<EPS-DILUTED> (8.95)
</TABLE>
